via The Economist
The US Senate has passed a controversial currency manipulation bill that would allow the government to put in place countervailing duties if the Commerce Department determines that a foreign government is subsidising exports by undervaluing its currency. While the bill doesn’t actually point fingers at the People’s Republic, China was at the top of the minds of the senators who were drafting it. The bill’s fate now hangs in the balance in the House of Representatives.
US legislators looking to the bill for a quick fix to all of America’s economic woes are likely to be severely disappointed, as the above chart from The Economist shows. The numbers show that the deficit has actually widened along with the strengthening of the yuan, once between 2007 and early 2008, and again between 2010 and now. The truth remains that there are many other factors contributing to the US trade deficit with China, such as the lax intellectual property rights here, barriers to entry for foreign market players, export tax rebates, credit subsidies and so on.
While the Chinese central bank has been rushing to drive up the value of the yuan (who says they won’t respond to some good old-fashioned arm-twisting?), the Ministry of Foreign Affairs has been talking tough, saying the bill “gravely violates World Trade Organisation rules.”. Let’s hope a full-on trade war doesn’t happen next because that’s the last thing we need right now.