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Labeling China a currency manipulator would hurt US more

( chinadaily.com.cn)
Updated: 2010-04-06 16:47
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As the number of manufacturing and goods-producing jobs lost in America over the past decade grows, many in Washington and on Main Street are clamoring for a trade and currency war with China. However, Michael Pento, columnist for Forbes.com. argues that "the answer for the US can't be found in simply forcing the Chinese to appreciate their currency, or by devaluing the US dollar". Labeling China a currency manipulator would hurt the US more.

Historical data show that appreciation of the yuan cannot reduce the US deficit, said Pento on Forbes.com. As we know, the yuan rose by about 20% against the dollar between 2005 and 2008. Nevertheless, the US deficit soared by one-third to $266 billion. "The truth is that currency values are important but not as important as the wages, taxes and regulations within a given country." said Pento.

Meanwhile, Pento states that the US is in no position to force its largest creditor to do much of anything, and that "the US must finally accept that it's up to the Chinese how they want to handle their trade surplus."

Moreover, Pento believes that China will hurt less in a trade and currency war with the US. A rising yuan would eventually boost Chinese living standards, while it would "force the Treasury to scramble to find a replacement for China's support of our bond market and much higher interest expenses to service our debt. It could also send interest rates sufficiently higher so as to cripple our still overleveraged private sector and now massively indebted public sector. For US consumers, unlike their Chinese counterparts, it would mean the return of inflation in earnest--especially given our heavy reliance on imports".

Then, how to revive the American economy and compete more effectively with China? Pento gives his own answer: "The US should lower taxes and reduce regulations. We should also concentrate on boosting high-tech manufacturing and not necessarily seek to merely supplant China's textile industry. "