THE RISK of a global currency war escalated yesterday as the US passed a measure threatening trade with China in response to its efforts to keep the yuan undervalued.
Politicians voted 348 to 79 in favour of a measure that would allow – but not require – the US Department of Commerce to assess levies on goods imported from China or other countries if it determines their currency policies amount to an unfair subsidy.
About 100 Republicans joined with Democrats to pass the legislation.
“The reason that I’m pushing China about their currency is because their currency is undervalued,” said President Barack Obama acknowledging that many believe Beijing is managing the yuan to make Chinese exports cheaper, while hitting US sales to China.
In a sign of growing impatience at the slow pace of talks with Beijing, other politicians were more outspoken, with Republican representative Mike Rogers describing China’s efforts as “manipulation”. “They cheat to steal our jobs,” he told the House.
The rules still require approval from the Senate and Obama himself, and are not expected to become law until after the congressional elections on 2 November. Many American politicians hope the threat of legislation will be enough to push the Chinese government into action.
However, some economists are sceptical of the bill’s impact on America’s trade deficit. “We consume a lot. The Chinese save a lot. We’re going to run a trade imbalance with them,” said Derek Scissors, an economist at the Heritage Foundation think-tank.
America has stepped up its pressure on China this month, with treasury secretary Tim Geithner pledging to use “all the tools we have” to halt the widening trade gap between the two economic powers.
Obama met with Chinese premier Wen Jiabao at the UN last week, but aides reported that China continued to resist calls to revalue the yuan.
The People’s Bank of China posted a statement on its website yesterday pledging to increase the flexibility of its currency, a move the central bank has made several times since cutting the yuan’s peg to the dollar in June. The currency rose two per cent against the greenback in the summer.
Brazilian finance minister Guido Mantega warned on Tuesday that “we are in the midst of an international currency war” as countries attempt to boost their flagging economies by weakening currencies. Japan has already intervened in the foreign exchange market, buying around $21.5bn (£13.6bn) in dollars this month to weaken the yen.