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US cautioned over China trade bill
Legislation paving way for imposing tariffs over currency practices draws strong criticism from US companies and China.
Last Modified: 30 Sep 2010 10:16 GMT
 IMF economists say China's currency is still 5-27 per cent undervalued despite the gains made since June [File: EPA]

China has said it "firmly opposes" a bill passed by the US House of Representatives that would penalise Beijing for not letting its currency rise faster in value, saying the move could harm trade ties.

Jiang Yu, China's foreign ministry spokeswoman, said the bill would have a "negative effect on both countries" if it was passed into law.

"We urge the members of the US congress to understand clearly the importance of China-US trade and economic relations, and put a halt to protectionism so as to avoid hurting the interests of the peoples of the two countries and of the world," she said on Thursday.

A group representing US businesses in China has also criticised the bill, saying it could place thousands of American jobs in export-related industries at risk and would not spur growth.

"Blaming China won't help the US economy but this legislation may cost American jobs," John Watkins, chairman of the American Chamber of Commerce in China, said.

"We call on the US senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."

Price advantage

The bill, passed by 348 to 79 on Wednesday, allows the US commerce department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that US companies can request a countervailing duty to offset China's price advantage.

To become a law, the measure has to be adopted by the senate, where its prospects are unclear, and then signed by Barack Obama, the US president.

Nancy Pelosi,  the House speaker, said the bill would give the White House leverage in talks with China and "make it clear that if China wants a strong trading relationship with the United States, it must play by the rules".

But Nick Reilly, president of General Motors Europe, says that tackling devalued currencies is not the answer to promoting economic growth.
 
"I think we need to concern ourselves with the competitiveness of Western economies to compete against China and others in Asia where there has been a substantial economic shift towards the East," he told Al Jazeera.

"We need to recognise that and we need to work on the competitiveness of the West.

"I don't think we are going to win that war or battle by devaluing currencies that's generally a sign of weakness. I personally don't think the answer in that is making the renimbi [yuan] stronger."

Before the vote, China's central bank reaffirmed its pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.

US politicians have long threatened trade retaliation for what they see as China's policy of undervaluing the yuan to give its exports an unfair advantage.

But they have never sent the president any legislation to sign into law.

Weakened currencies

Obama said on Wednesday he was pushing China on the yuan "because their currency is undervalued".

"That's not the main reason for our trade imbalance but it's a contributing factor."

Despite the yuan's modest gains against the dollar since China allowed more movement in June, International Monetary Fund economists estimate the yuan is 5-27 per cent undervalued.

China's tight control over the yuan is under intense scrutiny as countries around the world look to export their way back to economic recovery, raising concerns they will intentionally weaken their currencies to gain an edge.

Japan intervened this month to weaken the yen for the first time in six years.

Asked for his views on the US trade bill on Thursday, Warren Buffett, chairman and CEO of the financial firm Berkshire Hathaway, who is on a visit to China, said: "If I were investing in a company with a particularly weak currency ... that [I thought] was going to prevail over a long period of time, I would obviously discourage the investment if they were earning money in that currency.

"So if we were looking at a country with hyperinflation, we would be reluctant to invest in that country because we would be worried the currency we got out five or 10 years later would be worth a lot less. But I don't see that as any problem at all in terms of investing in China."

Source:
Al Jazeera and agencies
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