Friday, 15 October 2010

Currency wars: Scholar acccuses U.S. of hypocrisy on exchange rates

The United States is engaging in the same practice it criticizes others for when it tries to push down the value of the U.S. dollar against the Chinese currency, a renowned U.S. scholar says.

Harry Harding, a top China specialist who is now dean of Frank Batten School of Leadership and Public Policy at the University of Virginia, said in a recent interview with Xinhua that U.S. Treasury Secretary Timothy Geithner at a congressional hearing warned people in the financial and business communities of "a currency war", which he defined as "competitive devaluation".

But the treasury secretary did not realize, "or at least did not acknowledge," that the United States was doing what it criticized others for doing when it pressured China to revalue its currency. Revaluing the Chinese yuan equalled devaluing the U.S. dollar, "and so, my point is simply that we are engaging in the same practice, too," Harding said.

Meanwhile, Harding downplayed the threat of trade wars as a result of economic disputes among nations. Trade wars were far more difficult in today's world because the World Trade Organization (WTO) made it difficult for countries to impose tariffs or non-tariff barriers to protect their industries, he said.

However, as there were no WTO equivalents to govern investment or currency policies, "I think people are right in saying" that economic wars in the 21st century, if there would be any economic wars, would be currency wars, he said.

The U.S. was pushing China to appreciate its currency mainly because of pressure from the business sector to promote U.S. exports against the backdrop of continued recession in the country, Harding said.

There were basically three ways to stimulate the economy: by increasing government spending, by increasing domestic consumption or by promoting exports, he said.

In the U.S. case, "the government cannot buy anymore because of the level of the fiscal debt, and consumers cannot buy anymore, or at least the increase in consumption will be lower than before," and, as U.S. President Barack Obama said, the "way out" is to increase exports, Harding said.

Changing the value of the dollar might be the quickest way to increase exports, but it would not change the U.S. trade imbalance. The main problem of the U.S. economy was over-consumption, he said.

 
The U.S. House of Representatives recently approved a tax bill targeting China over its currency policies, but Harding said there was a fairly low possibility that the bill would become law.

The bill had to go to the Senate for approval and, even if the Senate adopted it, unless it's exactly the same as the House bill, it would be sent back to the House for reconsideration, Harding said.

U.S. lawmakers were running out of time to get the bill passed because this congress was to end soon and every piece of legislation died when congress went out of session. When a new congress came into session in January next year, they would start from the beginning, Harding said.

Even if the bill became law, Harding said, it would have limited impact because it simply instructed the U.S. Commerce Department to take into account the devaluation of currency in deciding on anti-dumping cases.

Harding accepted Xinhua's interview on the sideline of a luncheon meeting with Houston business leaders sponsored by the Asia Society Texas Center.

In a keynote speech on U.S.-China relations delivered at the luncheon, Harding, former Deputy National Security Adviser to the Clinton Administration, used the word "resilient" to describe the current U.S.-China relationship, instead of "fragile" he used in his 1992 book "A Fragile Relationship: the United States and China since 1972".

Common interests between the two countries, including mutual prosperity, anti-terrorism, energy security and climate change, had brought the two together, but because of the limits in their interests and differences in approaching issues of common interests, the relations sometimes could not run smoothly, he said.

The China specialist also used "frenemies", which meant both friends and rivals, to define the complex Sino-U.S. relations.

Elaborating on why he thinks the U.S.-China ties now are "resilient" rather than "fragile", Harding said "resilient" meant that, despite ups and downs, the relations would not break up because they were too valuable for both countries.

Source: Xinhua

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