Editorials

Currency conflict

(China Daily)
Updated: 2010-06-16 07:37

Fresh pressure from US politicians to expedite the yuan's revaluation only exposes their misplaced belief that an increase in the Chinese currency's exchange rate is the panacea for all their domestic economic ills.

If these people look at hard trade figures, they will realize that they have been shooting themselves in the foot by politicizing the yuan revaluation issue.

On one hand, long-term trade figures compellingly prove that the exchange rate is not the decisive factor behind a country's trade growth. Since July 2005, the Chinese currency has risen by about 20 percent against the US dollar. But this rise in the yuan's value has neither improved the US trade deficit with China much nor stopped China from becoming the world's biggest exporter last year.

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On the other hand, some short-term trade figures indicate that the exchange rate cannot explain recent changes in China's trade with other countries. For instance, with almost no change in the yuan's value against the dollar, US exports to China in the first quarter of this year increased by about 50 percent year-on-year.

In the teeth of a recent 20 percent rise of the yuan against the euro, China's exports to Europe in May jumped 34.4 percent over the same month last year.

For those who are quick to say that the European debt crisis may hurt Chinese exporters in coming months, the rise of the yuan against the dollar five years ago could be a useful guide.

Some US politicians may try to placate angry voters by playing up the myth of a revaluated yuan solving all their major economic problems, but hard trade figures have a different story to tell.

The US has to export more to cut its trade deficits and restore balanced growth. Blaming China's exchange rate policy will not help raise US exporters' competitiveness, instead it will poison the environment for them to export to one of their largest and fastest growing markets.