Opinion

US currency bill 'little help to its economy'

(Xinhua)
Updated: 2010-09-27 11:51

BEIJING - As the US Congress moved a step closer to punishing China for allegedly manipulating its currency, economists told Xinhua that the bill, even if it became law, would not aid the US economy.

"At best, it will have little impact on job creation in the US, but it will make some Congressmen feel better while encouraging retaliation from China, which is good for no one," said Robert Lawrence Kuhn, an international investment banker and corporate strategist, and author of the book "How China's Leaders Think."

However, some US lawmakers are preaching the "benefits" of the bill which would allow the US Commerce Department to use estimates of how much China undervalues its currency to calculate and slap countervailing and anti-dumping duties on imports from China and other countries.

If China allowed its currency, the RMB, to appreciate sharply, "it could create a million US manufacturing jobs and cut our trade deficit with China by $100 billion a year," Nancy Pelosi, the House Speaker, said earlier this week.

"This estimate is certainly misleading, because even if the trade deficit with China would be improved by this amount, the US would have to have an almost corresponding increase in trade deficits with other countries, assuming no difference in US standard of living," said Kuhn.

"Pelosi's statement is simply untrue, as is shown by the economic facts and would be seen if the U.S. impose tariffs on China," said John Ross, a visiting professor at Antai College of Economics and Management, Shanghai Jiaotong University.

The US had stopped making most of the goods it imported from China, neither was it able to make them so competitively, said Ross, former director of economic and business policy for mayor of London Ken Livingstone from 2000 to 2008.

"So if US imports from China were blocked by tariffs, they would be replaced by imports from Mexico, Vietnam and other countries. No US jobs would therefore be created and the US trade deficit would not decrease," Ross said.

For those who say an increase in the RMB's exchange rate would cut China's trade surplus, Ross pointed out the elementary economic mistake of assuming that the increase in the price of imports would not be offset by an equivalent reduction in their volume.

Most experts attributed the US trade deficit with China to the international division of labor supported by globalization, and suggested the US innovate and pioneer new kinds of jobs.

"Unless the US goes for sheer protectionism, it is impossible with globalization for old-style manufacturing jobs to return to the US," Kuhn said.

Many economists, including Gary Becker and James Heckman, the Nobel Laureate economists from the US, have told Xinhua that the "very low savings rate" in the US was the root cause of its trade deficit.

"The root cause is simple and obvious: US consumers buy too much and save too little, financing their overspending with debt," Kuhn said.

Like Kuhn, Ross also said the US trade deficit stemmed from the fact that its consumption was too high a proportion of its economy as a result of its excessively military spending and the very high cost of healthcare.

"If the US does not reduce excessive consumption, its imports will not be reduced and imports from China will simply be reduced by imports from other countries," said Ross.

The two economists also said the conditions for a major appreciation of the RMB do no exist, warning against the unwanted consequences of a sudden and sharp RMB appreciation.

"If China excessively raised the exchange rate of the RMB, this would not aid the US economy, but it would damage China and the rest of the world economy as China is making increasing contribution to the world economy," said Ross.

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Chinese Premier Wen Jiabao told business leaders in New York earlier this week that "There is no basis for a drastic appreciation of the RMB."

"If the RMB were suddenly to rise by a large degree against the dollar, we can't imagine how many Chinese factories would go bankrupt, how many Chinese workers will lose their jobs, and how many migrant workers will return to the countryside," Wen said.

Kuhn said that "A sudden, sharp appreciation of the RMB does not make sense in that it would threaten the existence of many businesses in China and hurt economic and social stability, which would be in no one's interest worldwide."

"The real aim of the lawmakers advocating the bill is not to aid the growth of the US economy, which is a legitimate concern of US policy makers, but to weaken China's economy, which is not a legitimate aim of the US lawmakers," Ross said.

A slow and steady rise in the RMB would be in everyone's interest, including China's as a higher RMB would force businesses to become more efficient through innovation, control inflation and increase the purchasing power of the people, Kuhn said.

Ross urged China not to carry out policies, such as a sharp appreciation of the RMB, that would damage China's own economy and those of the rest of the world, including the US.

The only way for the US economy to recover was to sharply increase its own savings level and end the restrictions on exports of various types of goods to China so that US exports could rise even more rapidly," said Ross.