LenovoKEVIN LEE
China's powerful export machine is back in overdrive, adding fuel to one of the world's great trade battles as pressure mounts on Beijing to raise the value of its currency.
The latest trade numbers from China, much stronger than analysts had anticipated, are turning up heat on the Obama administration to curb what has been widely viewed as an unfair Chinese trade advantage stemming from its deliberately undervalued yuan and hefty subsidies to the export sector.
Even before the latest data, U.S. lawmakers had joined in rare bipartisan agreement to press for a tougher stance on China, as Beijing continued to rebuff international calls for a currency revaluation. Thursday, exasperated senators, facing growing anger from constituents over high unemployment and a sluggish recovery, demanded to know what the administration is going to do to address the widening imbalance.
China reported that exports soared 48.5 per cent in May from a year earlier. Not even a surge in imports could keep the country's trade surplus from ballooning to $19.5-billion (U.S.) from $1.7-billion in April and a deficit in March. The surplus on trade with the U.S. widened in April to $19.3-billion from $16.9-billion, and the shortfall is expected to grow in the months ahead, as a slowly reviving U.S. economy sucks in more imports.
"The distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need," U.S. Treasury Secretary Timothy Geithner told the Senate finance committee Thursday. A "more flexible" currency "will allow market forces to play a more active role over time in facilitating strong, balanced and sustainable growth globally," he said.
The fresh reading brought renewed calls in the United States to force Beijing's hand.
"I'm not sure what this administration's policy is," fumed Montana Democrat Max Baucus, head of the finance committee and a long-time protectionist.
Another trade hawk, New York Democrat Charles Schumer, told Mr. Geithner that lawmakers will push ahead with legislation to impose countervailing duties and other penalties on the goods of any trading partner whose currency is found to be "fundamentally misaligned" with the U.S. dollar.
"There's no doubt that there's a lot of pent-up frustration with China in the United States," said Marc Busch, a professor of trade policy and law at Georgetown University in Washington. "The politics are largely outstripping any economic reality in this discussion."
The Chinese allowed the yuan to appreciate by 22.5 per cent against the dollar between 2006 and mid-2008, but then froze it at a level slightly above 6.8 yuan to the greenback in response to the global crisis. It has stayed there ever since, while its implicit value has climbed steadily, thanks to economic gains.
"The trade deficit with China is reducing U.S. GDP by more than $400-billion or nearly 3 per cent," said Peter Morici, a business professor at the University of Maryland and former chief economist with the U.S. International Trade Commission. "Unemployment would be falling rapidly and the U.S. economy recovering more rapidly but for the trade deficit with China and Beijing's currency policies."
China has argued repeatedly that revaluing the currency would not affect the trade imbalance with the United States, and said changes to policy will be made at its own pace, not that of other countries. And it is by no means clear that a revalued yuan would dampen imports from China or even cause prices to rise.
"How much of the Chinese value chain is priced in Chinese currency?" Prof. Busch asked. "Much of it is denominated in U.S. dollars, so would a revaluation accomplish anything?"
Numbers being bandied about in Washington and other finance circles indicate that an appreciation of 5 to 8 per cent might be enough to mollify China's Western trading partners. But that would likely have no impact, he said. "What revaluation are we waiting for that's going to undo the trade imbalance?"
In any case, the anti-Chinese lobby is ignoring a crucial piece of information, namely that Chinese imports are also surging, some China trade watchers say.
"The big news on the trade front for China is the soaring import numbers," said Ken Courtis, founding partner of Themes Investment Management in Hong Kong.
Japan, South Korea, Taiwan, Australia and several other Asian countries are running hefty surpluses with China. Germany is headed for a positive trade balance by the end of the year, and China has emerged as the fastest-growing market for U.S. exports.