The Currency Exchange Rate Oversight Reform Act of 2011, a bill passed by the U.S. Senate on Tuesday that will push China to revalue its currency, may spawn a trade war between the two nations and endanger global economic recovery, economic analysts said.
The controversial bill, which calls for punitive tariffs on countries with allegedly misaligned currencies, noticeably the Chinese Renminbi or yuan, was passed in a vote of 63-35 at the Senate.
The attempt by the U.S. Senate to approve the bill will create a lose-lose situation for both sides and further worsen prospects for global economic recovery, analysts said.
"If the U.S. insists on blaming China for its trade imbalance and domestic problems, it could trigger a worldwide recession and do even greater damage to global interests," said Liu Weiping, a researcher with the Massachusetts Institute of Technology.
YUAN NOT CAUSE OF U.S. AILMENTS: The bill comes ahead of the U.S. 2012 elections and at a time when the United States is suffering sluggish growth and persistent high unemployment, which have driven thousands of protesters to the streets of New York and dozens of other cities.
Many people in the United States believe that the yuan has been undervalued, offering Chinese producers a competitive edge in global markets. Backers of the bill said the bill would help reduce trade deficits and improve employment. "Chronic financial ailments and climbing unemployment in the U.S. are not China's fault," Liu said.
China's labor, energy resources and land costs are relatively low, and many products are cheaper mainly because taxes on resources are ineffectively implemented, none of which have anything to do with the yuan's exchange rate, Liu said.
Statistics showed that the U.S. unemployment rate has risen from seven percent to over nine percent since 2005, while the yuan has appreciated against the dollar by over 30 percent during the same period.
Coping with its trade surplus, China has adopted a raft of measures to boost imports and reform its currency policies to create more flexibility. In the first half of 2011, the ratio of China's trade surplus to its gross domestic product dropped to 1.4 percent, according to the Ministry of Commerce.
"Whether the yuan should rise more quickly should not only be measured by China's external surplus, but also by the nation's internal development," Liu said.
There are a variety of reasons for the global trade imbalance. Differences in investment and trade structures, savings and consumer behavior, roles in the global industrial chain and the international monetary system may be more important reasons for the trade imbalance between China and the United States, the People's Bank of China (PBOC), the central bank, said in a statement.
"The U.S. should examine its own economic structure and address the fact that it spends a lot while restricting the spending of other countries by limiting oil and technology exports," Liu said.