Trade relations between China and the US have taken on a more fractious tone in recent weeks, as US legislators again try to force China’s hand on the yuan’s valuation.
The first salvo was fired by the Senate’s banking committee on June 13, when senators Chris Dodd and Richard Shelby announced a bill that, if passed into law, would make it difficult for the US Treasury Department to avoid calling China a currency manipulator. Once labeled a currency manipulator, the proposed law would also mandate the Treasury to pursue a case against China with the WTO, among other rigorous actions.
Not to be outdone, four senators introduced a bill the following day that would allow American companies to seek anti-dumping duties on Chinese goods if the yuan is found to be “fundamentally misaligned.” It would also require the case to be taken to the WTO.
Treasury Secretary Henry Paulson once again found himself trying to play peacemaker. In his semi-annual currency report on China, he did not label the country a currency manipulator, although he acknowledged the yuan was undervalued. He has also said that discussion, not legislation, is the key to making progress on the issue.
A civil resolution to the currency situation was made even more unlikely by the latest trade figures.
China’s trade surplus in May rose 72.3% year-on-year to US$22.4 billion. This brings the year’s trade surplus to a staggering US$85.7 billion, up 80%. These numbers make the US trade deficit with China, which was US$233 billion last year, look even worse.
The impatience of American legislators contrasts with several conciliatory gestures made by the Chinese government in recent weeks.
To coincide with May’s Strategic Economic Dialogue in Washington, where Vice Premier Wu Yi held largely unfruitful talks with Paulson, China made a number of conciliatory moves: It bought more than US$4 billion in US high-tech equipment, widened the yuan’s trading band to 0.5% from 0.3%, and imposed tariffs on steel exports.