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WASHINGTON: Tensions between the United States and China are set to
increase during the current financial turmoil but any trade war can
adversely impact the two key drivers of global growth and the rest
of the world, experts warn.
Trade frictions will erupt as the United States
enters deeper into recession and China’s economic growth shortfall
worsens, the experts said.
US Treasury Secretary Timothy Geithner has
already accused China of manipulating its currency to gain trade
advantage while “Buy America” provisions have slipped into
Washington’s nearly $800-billion economic stimulus package.
The currency charge was met with a strong
response in Beijing while the Buy America move drew Chinese
allegations of trade protectionism.
“As the US unemployment rate now mounts in an
ever-deepening recession, the politics of trade frictions may well
gather greater support,” Stephen Roach, chairman of Morgan Stanley
Asia, said at a Washington forum Tuesday on China and the current
global economic downturn.
“If these two nations end up at odds with one
another, they will both suffer—with dire consequences for the rest
of a crisis-torn global economy,” he said. “The stakes are
enormous. There is no margin for error.”
More than 40 pieces of anti-China trade
legislation were introduced in the US Congress in recent years amid
a ballooning trade deficit with China but none of the bills have
been adopted.
“That may change,” Roach warned as both
countries grapple with the worst crisis in decades.
Tensions between the two economies “are likely
to intensify at this time of worldwide economic distress,”
predicted Eswar Prasad, a former head of the China division in the
International Monetary Fund.
But any confrontational approach by both sides
“will almost certainly be counterproductive” and “this would
poison the US-China relationship in a manner that could have
deleterious long-term consequences on many fronts,” he said.
But Prasad said paradoxically, the current
crisis could also result in greater cooperation between the two
economies.
He said China needed export growth in order to
maintain job growth and preserve social stability and, while
chalking up trade surpluses, had little alternative to buying US
Treasury bills with the reserves it accumulates as it manages its
exchange rate.
The United States, meanwhile, needs willing
buyers for the Treasuries issued to finance its budget deficit,
which is certain to increase due to bailout of troubled enterprises
and fiscal stimulus operations, he said.
“There is a great deal of commonality of
economic interests between the two countries and it is these shared
interests that should be the basis for a mutually beneficial
economic relationship,” Prasad said.
Robert Cassidy, a former US trade envoy on China
affairs, said the current crisis presented “unprecedented
opportunities” for Beijing to amend its currency policy and lift
barriers within its own economy.
“In particular, the current crisis presents an
opportunity for China to play a global economic leadership role by
restructuring its development programs in ways that will generate
greater growth of its domestic economy as well as the global
economy,” he said.
Cassidy wanted China to accelerate its currency
rate of appreciation, saying it should stop using an
“undervalued” yuan to make exports more competitive.
“If China is unprepared to make those steps,
then the United States and other countries should consider
initiating, in a progressive manner, stronger actions against
China’s beggar-thy-neighbor policies,” he said.
Critics argue that any serious US retaliation on
China’s currency policy could see China’s unloading its massive
US financial assets.
“That’s hardly a trivial consideration for a
United States that needs about $3 billion of capital inflows each
business day to fund its current account deficit,” Roach said.
“If China fails to provide its share of
America’s external funding, the dollar could plunge and real long
term interest rates could rise. A dollar crisis is the very last
thing a US in recession needs.”
Latest US Treasury data show China remains the
top holder of US Treasury bills, with $696.2 billion of such
securities in December.
-- AFP
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