The US Senate passed the Currency Exchange Rate Oversight Reform Act of 2011 on Wednesday, demanding the US government impose punitive tariffs on its main trading partners whose currencies it considers undervalued.
The bill is widely believed by the outside world to be a means of pressuring China to accelerate appreciation of the yuan. The Chinese government has expressed firm opposition to the move, saying it is a kind of protectionism and will compromise the interests of both countries.
It is the logic of some US Senators that China has artificially undervalued its exchange rate, a move that they say is equivalent to subsidizing its exports and giving its products an unfair advantage in the US market. They say China should raise the value of its currency at a faster speed, or receive punitive duties on its exports.
The outlook for the US' economic situation is still pessimistic, with its economic growth on a weak footing, its jobless rate high and still growing, and its fiscal deficit continuing to rocket. In particular, the ongoing fierce bipartisan disputes have added political difficulties to achieving a US economic recovery.
However, revaluation of the yuan will not help the US overcome its trade deficits with China. Since 2006, the yuan has risen by 30 percent in its value, exceeding the 27.5 percent increase originally demanded by some politicians in the US. But even this appreciation of China's currency failed to reverse Beijing's growing trade surplus with Washington.
The Sino-US trade imbalance is a complicated structural issue. To a large extent, the US trade deficit stems from the transfer of its previous trade deficits with other Asian countries to China. As a matter of fact, Beijing's increased trade surplus is almost equivalent to the amount of the US' decreased trade deficit with its other Asian trading partners.
China has reiterated many times in recent years that the main way to resolve the Sino-US trade imbalances is not to reduce its exports to the US, but increase the US' exports to China. However, the US has kept strict limitations on high-tech exports to China unchanged for more than a decade, including the export of satellites, integrated circuits, program-controlled switchboards, advanced machine tools, aerospace and biological technologies. The China Chamber of Commerce in the US has long complained of this policy. The US Obama administration has said it will review these bans but it has so far failed to make any substantial progress on the issue.