US-China trade war over yuan edges closer
China bluntly rejects US calls to revalue currency
The Chinese President has snubbed pleas from President Barack Obama for Beijing to revalue the Chinese yuan. It leaves relations between the so-called G2 at a fresh low, and raises fears of a trade war. Calls from the US Congress to formally label China a currency manipulator will intensify in the wake of the current failed round of talks.
Speaking on the fringes of the international nuclear summit in Washington, at which the two men met, President Hu Jintao reportedly told the American leader that an appreciation of the yuan would "neither balance Sino-US trade nor solve the [US] unemployment problem", and that the value of the yuan would be set primarily to suit domestic Chinese considerations.
China News Service reported that Mr Hu said China "is firmly committed to the direction of reforming the... exchange rate regime. This is based on the needs of China's own economic development." However, he added that "outside pressures will not advance reform". Mr Obama had urged the Chinese to put the yuan on a more "market oriented" footing.
Many in Washington accuse the Chinese of manipulating their currency to gain an unfair advantage in trade. America's trade deficit with China – $229bn (£149bn) – is the largest bilateral deficit in world history and the main "global imbalance" to destabilise the world economy going into the recession. Trade sanctions on China have been advocated by many members of Congress as well as leading economists such as Paul Krugman.
The US Treasury Secretary, Timothy Geithner, visited China for talks last week and seemed to receive some encouragement from his meeting with the Chinese Vice-Premier, Wang Qishan. Mr Geithner has delayed an official Treasury report labelling China a currency manipulator, though the latest war of words may make such a condemnation inevitable. The diplomatic mood music has turned less harmonious in Washington.
Intermittent skirmishes have been damaging US-Chinese economic relations since the recession pushed unemployment in the US higher. The Chinese commerce ministry has introduced a duty of up to 64.8 per cent on imports of US steel, in retaliation for a US move to impose an import tax on Chinese pipes.
Despite the uncharacteristically blunt language from the Chinese, many observers believe that China will eventually agree to allow the yuan to drift higher. Options include a one-off revaluation, possibly followed by a looser peg with the dollar, a strategy followed during 2005 to 2008. However the world trade recession – more severe even than the reduction in domestic national GDPs – forced the Chinese to devalue their currency again, the source of much of the current friction.
During the boom, Western consumers became dependent on a flow of cheap Chinese capital generated by China's trade surpluses with the advanced economies, to fuel their consumption boom and property bubbles, until the whole system became so unstable it collapsed.
Fixing the global imbalances is routinely identified in G20 communiqués and other high-level diplomacy as essential to rebalancing the world economy, and many believe the value of the yuan is the biggest obstacle to such a fundamental adjustment.
- 1 Australia to impose 24-hour curfew on all cats to protect endangered species
- 2 Model's video shoot on the beach interrupted by sudden landing of a group of illegal migrants
- 3 The difference between a psychopath and a sociopath
- 4 MH370: Boeing 777 wing that could match missing plane found on the French island of Reunion
- 5 'Killer robots' with AI must be banned, urge Stephen Hawking, Noam Chomsky and thousands of others in open letter
Kate Winslet thanked 'particularly horrible' girl who bullied her at school after Titanic success
Israel accused of killing 75 children during day of 'carnage' and war crimes in Gaza war
Australia to impose 24-hour curfew on all cats to protect endangered species
Walter Palmer: Cecil the lion killer revealed to be American dentist
MH370: Boeing 777 wing that could match missing plane found on the French island of Reunion
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
Labour leadership contest: I would never quit the party, says Liz Kendall
iJobs Money & Business
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250...
£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...
£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...