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China threatens US with trade war over currency bill

Posted by Ram Kumar Shrestha on October 5, 2011

A woman exchanges money at a currency exchange shop in Hong Kong on September 15, 2011. (AFP Photo / Laurent Fievet)

Anger is erupting out of Beijing this week after lawmakers in Washington are aiming to force Chinese currency to rise to put both nations on level ground with trading.

Politicians on Capitol Hill are hoping that a proposed bill could keep currency in China from getting any lower and thus giving what they say is an unfair advantage to business in the Far East. China, however, has responded that the legislation would just be Washington’s way of putting the rest of the world’s economies at risk.

Before Congress this week, Senate Majority Leader Harry Reid said that China’s “deliberate actions to devalue its current gives its good an unfair competitive advantage in the marketplace.”

Earlier this summer, solar panel manufacturers Solyndra filed for bankruptcy after they revealed that they could no longer generate a profit in an industry in which foreign competition, particular that in China, can create goods at a cheaper cost. The downfall of Solyndra came despite heavy backing by governmental loan guarantees. They were one of several related companies to recently close its doors.

In a response to the proposed legislation, China’s central bank and its ministries of commerce and foreign affairs all said that DC lawmakers are “politicizing” currency issues.

Should that bill become a law, China says a trade war could come to a head between the two largest economies on Earth.

“The strong responses made by the Chinese government may also suggest that the possibility would be quite high this time that the United States will pass the final bill in the end and that Beijing is worried about the possible negative impact on China’s exports resulting from the legislation,” Wang Zihong, a researcher at the China Academy of Social Sciences, tells Reuters.

Zihong adds that the fact that opposition so quickly erupted out of China should be a strong signal that concern is much greater than Americans may think.

Speaking to RT, investor Jim Rogers added that the repercussions of a trade war could be catastrophic.

“If it turns into a trade war, it is the most momentous thing of 2011,” said Rogers. “Trade wars always lead to wars. Nobody wins trade wars, except general who end up fighting the physical wars when they happen. This is very dangerous.”

Rogers added, “Congress is making themselves look good when in fact they may be having a problem.” The People’s Bank of China has responded that they “regret” the Senate’s Monday vote in which they agreed to consider the bill.


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