The Economist - Lost in Translation - If China sharply revalued the yuan

The Economist - Lost in Translation - If China sharply revalued the yuan

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Lost in translation  May 17th 2007 | BEIJING AND HONG KONG From  The Economist  print edition If China sharply revalued the yuan, as American politicians are demanding, it could actually  hurt the United States and help China  Stephen Jeffrey CHINA is being cast as the villain once again. By holding its exchange rate artificially low, it is  stealing jobs and causing the United States to run a huge trade deficit. Beijing must therefore be  forced to revalue the yuan. These are the arguments behind an increasingly protectionist mood in  Washington. Yet they are largely flawed. A stronger Chinese currency would not much reduce  America's trade deficit. Indeed, the irony is that China, not America, has more to gain from setting  the yuan free. Without a more flexible exchange rate, there is a growing risk that China's sizzling  economy will boil over. America's anger at China is clearly growing. In February it filed a complaint to the World Trade  Organisation (WTO) against Chinese export subsidies. In late March the Department of Commerce  announced tariffs of 10-20% on glossy paper imported from China, to offset the impact of alleged  government subsidies. This reversed a 23-year-old policy of not imposing countervailing duties on a  non-market economy. Then in early April the Bush administration filed two more complaints: one on  Chinese pirating of DVDs and CDs, and the other over restrictions on the sale of foreign films and  music in China.  Although by themselves these actions are trivial, together they point to an increasing appetite for  tougher action against China. The Bush administration is under increasing pressure, particularly  from Congress. Congressmen complain that the so-called China-US Strategic Economic Dialogue (a series of high- level talks between the two countries launched last year by Hank Paulson, the treasury secretary)  has so far failed to produce results. The recent deterioration in trade relations does not bode well for  the next meeting, which begins on May 22nd. Many commentators now reckon that Congress will  inevitably pass some kind of China-bashing legislation later this year. A sharp economic slowdown  in America as a result of the collapsing housing market would make this even more likely.  The biggest risk comes from measures linked to China's supposed exchange-rate misalignment.  The infamous Schumer-Graham bill, which proposed a 27.5% tariff on all Chinese goods to offset  the yuan's alleged undervaluation, was withdrawn last year. But the two senators behind it are  working with others on a new WTO-compatible version that could soon appear. Although the new 
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