The Chinese central bank and the ministries of commerce have come out as “adamantly opposed” to a U.S. bill proposal. They have said the U.S. government is “politicising” global currency issues, as the bill would force China to let its currency rise.
The Chinese ministry said that the bill violates World Trade Organisation rules. They also claim that forcing the yuan to appreciate would hurt the global effort to push for economic growth.
A spokesperson from the Chinese foreign ministry, Ma Zhaoxu, said of the bill: “By using the excuse of a so-called ‘currency imbalance’, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-U.S. trade and economic relations.”
Ma also reiterated China’s current position of slow currency appreciation. Since June 2010, the Chinese yuan has appreciated 7%, in accordance with Beijing’s “gradual” reform policy.
The Chinese central bank stated that inflation in China has pushed the yuan exchange rate “towards the equilibrium” already, making the “protectionist” measures by the U.S. even more unfair.
Leaders in the U.S. retort that China has been keeping its currency undervalued to subsidize their exports, thereby hurting American jobs.
The proposed Currency Exchange Rate Oversight Reform Act of 2011 would give the U.S. government the right to levy “equalising” duties on goods from countries that are deemed to be undervaluing their currencies. This is proposed as a measure to close the annual $250 billion (£161.7bn) trade gap.
Though China denies that its currency policies help to create trade imbalances or contribute to unemployment in the United States, Senate Majority Leader Harry Reid contends, “China’s deliberate actions to devalue its currency give its goods an unfair competitive advantage in the marketplace.”
With 2012 elections nearing and unemployment stagnant at over 9%, Washington is under pressure to make a publicly-favoured change for the economy. While the Senate is Democrat-controlled, the fate of the bill in the Republican-controlled House of Representatives is uncertain, as the party is traditionally free-trade oriented.