Once again US Congress is finding it more convenient to play the China currency card as the panacea for America’s economic woes, rather than deal with the difficult issues in President Barack Obama’s recent employment bill.
Many within China thought that given recent developments, criticisms of its exchange rate policies would become more muted. After all, it has continued its policy of gradual appreciation of five to six per cent annually. With the euro crisis and strengthening US dollar, the renminbi has been the exception in appreciating, while other major currencies have depreciated. And although reserves continue to pile up, this is seen as having more to do with capital inflows seeking higher returns – encouraged by expansionary US monetary policies – than by misaligned exchange rates.
While a full-blown trade war is not in China’s interests, its leadership will not let any perceived negative action go unchecked. If Congress gets its way, the net impact will not be more American jobs, but reduced global demand and higher prices for US consumers. America should worry more about maintaining its position at the upper end of the technology spectrum than futile currency wars. Continue reading »