March 23rd, 2010
02:54 AM GMT
The tit-for-tat battle between Beijing and Google may be getting the headlines today, but it’s only an overture for the real battle brewing between China and the West.
On Capitol Hill, a group of lawmakers stood before reporters last week and warned about the evils of China’s undervalued currency, the yuan. Armed with new legislation to punish China, Democratic Senator Charles Schumer said the U.S. was ‘fed up’ with Beijing’s policies, which he says is costing the U.S. jobs, hampering the recovery and fueling its massive trade deficit.
The new bill was the latest in a series of recent and very public moves intended to press China to raise the value of the yuan.
But will these pressure tactics succeed? Probably not. If there is one thing Beijing has been consistent about, it’s that it rarely bows to foreign pressure, especially on issues affecting its economy. And any move to appease the U.S. would be interpreted as a sign of weakness, which Beijing has been reluctant to show.
And what if China did act? Would that solve the problems facing the U.S. economy? Again, probably not.
As economist Stephen Roach of Morgan Stanley said recently while being interviewed on another network, the U.S. isn’t facing a ‘China problem,’ but rather a domestic one. And targeting China is the result of Washington refusing to look into the mirror.
Other economists have also said a stronger yuan will do little to address a high U.S. unemployment rate or a massive trade deficit. And if anything, a stronger yuan would likely do nothing more than stoke U.S. inflation.
And don’t underestimate the weight behind China’s threats to retaliate, should the U.S. follow through with sanctions. Like it or not, China is becoming the driver of the global economy. And that has huge implications for America Inc. With companies like General Motors and Boeing increasingly looking to China for business, a warning from China should give reason to worry.
In fact, signs of a worsening political relationship may already be working its way into business relations. A survey from the American Chamber of Commerce showed a growing number of U.S. companies say they feel unwelcome in China and face discriminatory government policies.
There is little to be hopeful about as trade tensions escalate. The next big volley will likely come April 15th. That's when the U.S. Treasury is to consider whether to label China a currency manipulator in its semi-annual report. And if many lawmakers on Capitol Hill have their way, they just might.
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