China has kept its currency steady while those around it have plunged. But, try telling that to US critics who still argue the yuan isn’t rising fast enough. Senators may vote this week on a currency Bill that could lead to duties being placed on Chinese exports as punishment for a cheap currency. Weak US jobs data makes that more likely, but for the United States to lash out now could be a mistake.
New accusations of currency manipulation from the United States come just as China least deserves them. Appreciation of the yuan on trade-weighted basis in September was the fastest in at least a year. The central bank has been repeatedly fixing the midpoint around which the yuan trades each day at record highs, even as traders subsequently push the yuan’s value down by a maximum 0.5 per cent.
Without China’s strict capital controls, the yuan would probably be worth even less, not more. Other Asian currencies have fallen as much as 10 per cent against the dollar in the past month as investors pull out money. The offshore-traded yuan in Hong Kong has fallen as much as three per cent from September 1.
This probably won’t matter to US lawmakers, who are keen on finding a scapegoat for US job woes. Figures due on October 7 are likely to show the US unemployment rate stuck at 9.1 per cent in October. If the Bill passes the Senate, which looks likely, it goes to the House of Representatives, where there are already more supporters than last year. US President Obama, whose re-election chances in 2012 are clouded by high unemployment, may be reluctant to veto it if the push comes to shove.
This is worrying. Hitting out at China when it is already fighting a weakening currency may just result in retaliation. Trade tariffs on US-made goods, for example, would hurt the US because China’s imports from the United States are now growing at 17 per cent a year, faster than those that run in the other direction. A rash trade action at such a moment runs a big risk of backfiring.
