THERE were growing fears of a global trade war last night after the world’s largest countries clashed over currency policies aimed at protecting their own faltering economic recoveries at the expense of others.
In his strongest words yet on America’s long-running dispute with China over the value
of its currency, US treasury secretary Tim Geithner went on the attack saying the
undervaluation of the yuan, which has risen just 1.25 per cent against the dollar since
Beijing announced the end to its currency peg in June, was boosting Chinese exports and
encouraging a jobs and production outsourcing exodus from the US.
Meanwhile, Japan yesterday remained defiant following its first currency intervention in
six years with Prime Minister Naoto Kan warning the government was ready to sell more than the estimated £11.2bn of yen it flooded the market with on Wednesday, if the initial efforts to push down its currency from its current 15-year high against the dollar were ineffective.
In a last-ditch bid to reverse the widening US trade deficit with China, Geithner, speaking at the Senate banking committee, pledged to use “all the tools we have” including World Trade Organisation rules on fair trade and protecting US intellectual property, but stopped short of openly threatening trade sanctions.
Geithner’s tough talk was aimed at relieving mounting voter anxiety about the economy ahead of the November mid-term elections.
There are fears the global currency order is disintegrating with countries breaking ranks to use 1930s-style devaluation to boost exports and shore up their own economies.
Senate Banking Committee Chairman Christopher Dodd told Geithner the time for action was “long overdue.”
“There’s no question that the economic and trade policies of China represent clear roadblocks to our recovery,” he said.
But Sander Levin, chair of the US House Ways and Means Committee, said the “deeply disturbing” decision to give Japan a free pass to intervene, would make it harder for the US to persuade China to curtail such activity.
A trade war between the world’s two largest economies would be a serious blow to Obama’s effort to ease strains on a range of economic and foreign policy disputes. The Obama administration wants to pay homage to American resentment over Chinese trade practices but must avoid alienating Beijing, whose diplomatic support is needed to tackle nuclear standoffs with Iran and North Korea.