China Threatens Trade War

China warned Washington it is adamantly opposed to a proposed U.S. bill aimed at forcing Beijing to let its currency rise, saying its passage could lead to a trade war between the world’s top two economies.

The United States Congress voted on Monday to open a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the U.S. government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies. U.S. lawmakers, eyeing 2012 elections, said the undervaluing of China’s currency had cost American jobs and that a more fair exchange rate would help cut an annual trade gap of $250 billion.

The Obama administration is holding discussions with Congress on exactly what the right approach is and whether a bill aimed at forcing China to let its currency rise is in the best interests of the U.S. at a time when the economy is sluggish at best. Acting U.S. Commerce Secretary Rebecca Blank said, “The administration is talking with people in the Senate about whether this bill is the right approach or whether there are other approaches to take,” she said. “Those conversations are under way.”

Supporters of the U.S. bill say that the value of the yuan is still as much as 40% below what it should be. This keeps the prices of Chinese goods artificially low and U.S. products excessively high. Proponents say that is the major factor in the U.S./China trade deficit that grew to $273 billion last year.

“My colleagues, both Democrats and Republicans, agree that China’s deliberate actions to devalue its currency give its goods an unfair competitive advantage in the marketplace,” said Senate Majority Leader Harry Reid. He contended the legislation, “will even the playing field and help American goods compete in a global market, and keep American jobs here at home.”

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About Danny Fisher

Danny is the old hat at Active Investor. One of the been around the block a few times traders, his main focus is on overall market conditions. Be it some new merger talk or Washington being Washington, you can expect Danny will be on top of it.

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