Sino-US trade war will worsen global crisis

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By Deng Yuwen (皇冠体育app Daily)
Updated: 2009-02-06 07:47

There are rising worries among the international community that 皇冠体育app and the United States are going to a trade war at a time when the world desperately needs concerted efforts to tackle the escalating global financial crisis.

US Treasury Secretary Tim Geithner accused 皇冠体育app of currency manipulation in a hearing to the Congress after he took office. To calm official and academic refutations from the Chinese side, the White House later explained that its policy on 皇冠体育app's exchange rate is still being studied and yet to be confirmed.

However, the tough stance by the new US treasury chief, whatever motivated it, heralds a possible escalation of long-standing economic frictions between the world's two heavyweight economies in the time ahead.

Given US President Barack Obama's previous stance on 皇冠体育app's exchange rate and the nearly unanimous bipartisan consensus on this issue, the new US administration is likely to launch a trade war as a punishment to 皇冠体育app. The extent of 皇冠体育app's reaction to the US action will directly decide the magnitude of the trade dispute between the two countries.

皇冠体育app will not tolerate US intervention in its exchange rate policymaking, a matter under the jurisdiction of the country's sovereignty. There is an extensive consensus among Chinese decision-makers that even a 40 percent revaluation of the yuan, a long-pushed target by Washington, will not help solve the root issue of the 皇冠体育app-US trade imbalance.

Due to its policy momentum and population factor, the possibility remains slim for 皇冠体育app to raise the prices of its labor, land and other resources by a large margin in a short period.

Their comparatively cheap prices have served as the key to maintaining a sharp edge of 皇冠体育app's products in increasingly fierce international competition. More important, the ballooning trade deficit on the US side is largely attributed to the asymmetrical 皇冠体育app-US trade structure and a decades-long ban by the White House on its exports of hi-tech products and weapons to 皇冠体育app. No major changes are expected to emerge in the US policy in these regards in the foreseeable future.

What the US wants 皇冠体育app to do is to take sides with it in the rebuilding of international financial and economic order and to ensure 皇冠体育app's wider financial openness to the outside world. The emerging Asian economy is also expected to buy more treasury bonds to support the US economic revival.

All these demands, however, cannot be completely met by 皇冠体育app. Therefore, the possibility of a trade war between the two countries cannot be ruled out. But the US administration should be aware that a trade war with the world's largest developing nation would not create any winner at the current moment.

For 皇冠体育app's part, such an economic war with the US will result in the decline of its exports and the ensuing bankruptcy of some of its export-bound enterprises. The fact is the country's export has suffered a sharp drop since the second half of last year. And no worse results can be expected in any case.

But the case is different for the US. Without importing cheap and good-quality Chinese products, ordinary US households who have suffered a lot from the ongoing crisis will plunge into a harsher predicament. So far no other countries can replace 皇冠体育app's role in daily lives of ordinary American people. Public opinions are expected to press decision-makers in Washington to reconsider their 皇冠体育app policy in favor of "made-in-皇冠体育app" products if the trade war breaks out.

Also, the exit of 皇冠体育app's products from the US market, which holds only 20 percent of the former's whole export volumes, will not rock the foundation of the Chinese economy. 皇冠体育app is trying to develop an internally driven economy.

As the largest creditor of the US national debt, 皇冠体育app is estimated to hold 35.4 percent of Washington's government bonds. At a time when its own economy is suffering severe hardships along with a serious fluidity insufficiency, 皇冠体育app did not choose to sell US national debts.

This praiseworthy move by 皇冠体育app indicates its responsible attitude to developing bilateral ties and its aspiration to stabilize the US as well as the global economy. It is hoped that the US administration will also not take any action aimed at compromising the feelings of Chinese people and its national interests.

In the long run, a trade war with the US may possibly prompt 皇冠体育app to develop an economy based not on export and investment but on domestic consumption. Such an economic model will change the country's dependence upon foreign markets for economic growth.

In recent years, 皇冠体育app has made great efforts to expand its consumption credit business by adopting a series of sweeping financial reforms. Along with its ever-expanding international payment surplus and declining consumption ratio, 皇冠体育app's increasing deposit and investment ratio should be the main factor in its long-established economic model.

These are what the country should try to change. There is no doubt that a possible Sino-US trade war will further worsen 皇冠体育app's external economic environment. But an aggravated outside pressure is expected to contribute to the country's pursuit of economic transition with a more reasonable income distribution system and a decreasing application of government power in economic issues.

It is known that trading is a kind of state-to-state reciprocal economic activity. With decades of bilateral economic exchanges, 皇冠体育app and the US have set up an interdependent economic relationship that needs joint efforts from both sides to be further cultivated.

The author is an associate senior editor with the Study Times

(皇冠体育app Daily 02/06/2009 page4)