Arab Today, arab today no winners in a trade war
Last Updated : GMT 09:09:51
Arab Today, arab today
Arab Today, arab today

No winners in a trade war

Arab Today, arab today

Arab Today, arab today No winners in a trade war

Washington - Xinhua

U.S. President Barack Obama said at the APEC summit in Hawaii late on Sunday that China was not doing enough to allow its currency to rise. But President Hu Jintao refuted Obama\'s charge and said the trade deficit and the unemployment problem that the US faces have not been caused by the yuan. Last month, US Congress passed a bill targeting the yuan, and Washington linked the Chinese currency\'s exchange rate with Sino-American trade to punish Beijing for alleged currency manipulation. The US move is intended to not only find a scapegoat for its economic recession, but also hinder China\'s development. The \"undervalued\" yuan may be a factor in the Sino-US trade imbalance, but it would be unfair to say that the yuan alone is responsible for the huge US trade deficit. The major causes of Sino-US trade imbalance are the differences in the two countries\' investment and trade structure, savings ratio, consumption rate and division of industrial labor, and the unreasonable international currency system. Misled by some economists, some American politicians have targeted the yuan to force China to revaluate its currency. But their calculation is wrong, because the US may not be the winner even if the US House of Representatives passes the bill, making it a law and triggering a trade war. The gains China and the US would make and the losses they would suffer if a trade war starts can be both short- and long-term. The biggest short-term impact on both countries would be in employment. If the yuan rises too fast, many migrant workers in export enterprises would lose their jobs, for their employers would go bankrupt because of a severe shortage of export orders. This would harm China\'s consumer market and pose a great challenge for its economy. The situation in the US would be better. Some American economists say that about 2.25 million jobs would be created in the US if the yuan were fully revalued. But that can come true only if the traditional industries \"crushed\" by the yuan\'s exchange rate can revive production, the chances of which are slim because the cost of labor in the US is very high, about 10 times more than that in China. American economists, in fact, differ on whether a rise in the yuan\'s value would help create jobs in the US. Some economists say that even if China revaluates the yuan, jobs will not be created in the US. Instead, American consumers will have to pay much higher prices for Chinese goods. Many of the goods China exports to the US are inexpensive daily necessities and favored by Americans because of their low prices. Therefore, if the yuan\'s value increases by 30 percent, the majority of Americans\' cost of living could go up by a similar percentage. Of course, the US can buy the same goods from other developing economies. But that would transfer the import market from China to other economies and fail to lower the unemployment rate in the US. And considering that Chinese products are inexpensive and American demand huge, it will be difficult for the US to find a substitute (or substitutes) for China. Besides, if China retaliates by increasing tariffs on American agricultural commodities such as soybean and meat products, as well as high-grade goods, it would hurt the US economy further. Different from China\'s major exports (daily necessities), American exports to China are agricultural produce, and products with high added value such as cars. Though agricultural produce are necessities, the problem is that many Chinese farm companies have been asking the government to reduce the import of American agricultural produce because they are causing them to suffer huge losses. Sanctions on US farm produce will hurt American agricultural workers who are vital for US interest groups, and higher tariffs on cars will create a severe problem for America\'s three largest automakers because they depend on the Chinese market to overcome the financial crisis. The yuan\'s revaluation, however, would ease domestic inflationary pressure and increase Chinese people\'s consumption capacity. And once internationalized, the yuan will not only prevent China\'s economic policymaking from being subjected to the US\', but also help China import more goods from other countries as substitutes for the imports from America. So, apart from the relatively big short-term impact on employment, a Sino-US trade war would have little impact on China\'s other areas. The Obama administration proposed a five-year plan two years ago to rebuild the US as a big exporting country in order to stimulate its ailing economy. But under the current situation, America\'s dream cannot be realized without the huge Chinese market. Americans should realize that neither side would win in a trade war and must prevent the Obama administration from taking any rash decision. As a mature economy, there is less internal potential for the US to explore. In the short run, a Sino-US trade war may make capital flow into America. But the rapid pace of China\'s economic growth and the ailing US economy would dwarf the dollar\'s status as a hedging currency in the long term, which would see capital fleeing the US. Also, if the scale and degree of a trade war increases further, China could sell part of the US treasuries it holds even if devaluates its foreign exchange reserves. Once China does that, it would deal a fatal blow to the dollar\'s credit and undermine its status as a world currency. In essence, trade is reciprocal business between countries instead of unilateral benefaction of one party. A trade war would deal a blow to not only China and the United States, but also the global economy, which is fueled by the \"China engine\", and even shake the foundation of Sino-US trade and international cooperation. In conclusion, the US will suffer more than China if free trade comes to a standstill. And since China does not expect a trade war, it should not be afraid of the US\' pressure so that American politicians and people would understand how determined it is and stop bashing over yuan. The author is a senior editor with the Study Times.  

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