international Herald Tribune Editorial - Politics and the yuan

international Herald Tribune Editorial - Politics and the yuan
Copyright by The international Herald Tribune
Published: July 9, 2007


Senator Barack Obama has joined Senator Hillary Clinton on the misguided bandwagon of those seeking to penalize China for manipulating its currency. The two senators and Democratic candidates signed up as co-sponsors to a punish-China bill that would mandate retaliation against countries that keep their currencies cheap to boost exports.

It is a predictable move at a time when voters are so anxious about low wages and holding on to their jobs. China's cheap currency and vast trade surplus, which matches up nicely with America's gargantuan trade deficit, are easy to blame.

Still, the prescription is wrongheaded. There is no guarantee that a rise in the value of the yuan would, on its own, boost American workers' wages or the economy in any significant way. Many of the things China exports to the United States have not been made in America for a long time. Forcing China to revalue the yuan would likely also lead to higher prices for goods in the United States and to a rise in interest rates if China decides to stop buying American Treasury bonds.

Washington needs to have a frank discussion with Beijing about its irresponsible export of poisonous toothpaste, dog food and toys and its piracy of American-produced software, movies and other goods. And Washington needs to encourage China to become a more constructive international player on issues from global warming to ending genocide in Darfur.

The cheap yuan, together with America's voracious spending, are the main causes of the enormous imbalances that have developed in global trade and financial flows. It is certainly worth reminding China that artificially holding down the price of its currency and building an economy only on exports is also not in its long-term interest.

Starting a trade war is not likely to change Beijing's mind. And it will make it harder to persuade and pressure China to become a more responsible exporter and a more responsible international player.