America’s “Four No-No's” Bill Wants to Sink Whose Ship?

The United States Senate forced through the Currency Exchange Rate Oversight Reform Act of 2011 on Oct. 11, adding more uncertainty to the hazy world economy already experiencing its second dip. Comprehensively analyzing the present world economy and the state of Sino-U.S. trade relations, it is hard not to say that this act by the U.S. Senate is guilty of “Four No-No’s.”

First, the bill is untimely. The 2008 American subprime mortgage crisis triggered an unprecedented financial and economic crisis, leading to a decline in the world economy and economic blows of varying degrees to a number of different countries. Through collaboration and united efforts to save the economy by the world’s great powers, the world economy was able to avoid falling into a drawn out period of decline. With the spread of the after effects of the crisis, however, there have been repeated outbreaks of European debt crises, resulting in America’s sovereign debt rating dropping not long after those of both Greece and Spain.

Since last spring, the world economy has experienced continuous turmoil, remaining in a depressed state and lacking the strength to revive itself. Fortunately, the emerging powers of the BRICS nations have gone against the global tide and have continued to maintain growth, thus becoming a mainstay in supporting the world economy.

Presently, the international community is concerned that the current predicaments of the developed countries will spread to and burden the newly emerging economies, therefore countries are hoping that a spirit of further cooperation will emerge from the coming G-20 summit meeting. Under this backdrop, this type of spirit of collaboration seen during the early stages of the crisis is urgently needed from the world powers. The passing of this bill by the U.S. Senate undoubtedly sends an “abandon ship” signal to the international community.

Second, the bill lacks reasoning. For the past several years, the U.S. has always had people who continuously shout that the yuan is undervalued, allowing Chinese exports to obtain an unequal competitive advantage, thus taking away Americans’ livelihood. In reality, as a measure of value and a method for exchange, the value of a country’s currency is an external reflection of the scale, quality and development level of its economy. Therefore, it is a result of market choices. During a time of economic globalization where each country’s development level is at a different stage, industrial transfers have become the rule.

The fundamental reason for America’s employment problem lies in the fact that the U.S. is a developed country. It is a mature market. A high cost results in the narrowing of room for profit in an industry. At most, the appreciation of the yuan will force those American companies who do large amounts of business in China to begin to look to countries with low costs, like India and Vietnam. It is highly unlikely that they would return to the U.S. Therefore, this bill only causes harm to others and is not beneficial to the U.S.

Additionally, high debt and deficit levels have been a recurring problem that has continued to plague America’s employment issues. As we all know, America’s current unemployment situation is a type of structural unemployment, meaning that many people cannot find jobs they are qualified for and many companies cannot find workers with the necessary skills. There are shortcomings in professional training, companies are not willing to invest and the government has no money to invest. Therefore, unemployment is an intrinsic problem linked to America’s own economic structure and not a problem that has been brought to America.

Third, the bill is not concerned with the consequences. This bill requires the U.S. impose a penalty tariff on all those countries with undervalued currencies. In this sense, the U.S. is openly assuming a trade war position, a move brought on by America’s economic hegemony and power politics.

The relative stability in the value of a country’s currency is a precondition for the stable development of foreign economic relations. Under the backdrop of financial globalization and marketization, maintaining the stability of one’s currency is the embodiment of a nation’s sovereignty and is also the responsibility of the government. No government can allow other countries or international financial speculators to decide or manipulate their currency rate.

In an increasingly interdependent world, protectionism cannot win out. America’s collection of penalty tariffs from China will undoubtedly be met with forceful reprisal. Initially, during the period of the financial and economic crisis, America’s rate of growth in exports to China was the fastest it had ever been and actually became an important safeguard for America to avoid a worsening of its economic situation. If China and the U.S. start a trade war, the price of Chinese products shipped to the U.S. will increase while the amount shipped will decrease. Products shipped to the U.S. from other developing countries such as the newly emerging powers will see an increase in the quantity but not necessarily a drop in price. This will certainly increase the industrial transfer costs of multinational corporations, in turn harming the interests of American consumers.

What the U.S. is doing is tantamount to taking their China market share and simply handing it over to the European Union and Japan. As for America’s own portion of lost exports to China, it will not be easy to immediately find an alternative market. Since this bill harms others as well as its own interest, there is only one way to interpret its intention: the U.S. will pay any price to try to contain China’s economic development.

Fourth, the bill is irresponsible. The U.S. is the leader of the world economy. It should have reflected more on the global economic disaster brought on by its subprime mortgage crisis and adopted constructive, responsible measures. Instead, this bill sends out a strong signal of protectionism, showing that the U.S. is assuming a trade war position and is not concerned about the consequences. One can’t help but suspect whether the U.S. is a reliable and responsible world power.

Since the breakout of the financial crisis, China has withstood huge amounts of pressure, tenaciously maintaining its own economic growth by taking advantage of opportunities to adjust its growth methods. China’s contribution towards the world economy exceeds 50 percent, with domestic demand accounting for a contribution rate of over 90 percent toward China’s economic growth. This has become the main factor in the world economy’s ability to resist drops and to maintain growth.

The target for this U.S. Senate bill is China, which leaves one feeling that the U.S. not only wants to abandon ship, they also want to bore a hole in it before jumping. If some senators, facing pressure from the general election, haphazardly take a path of carrying out political speculation, irresponsibly look for a scapegoat, encourage problem-diverting trade policies, and in the name of one’s own interest, endanger Sino-U.S. relations and even the condition of the world economy, well then, that is just irresponsible.