Yuan not to blame for trade gap with US

Updated: 2011-03-11 13:49

By Lan Lan (China Daily)

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NEW YORK - China's rising inflation is partly rooted in the rapid monetary expansion of the United States, and the real concerns for the US economy are its lack of competitiveness and trade deficits and not of the China factor, US economists said on Wednesday.

"The reason Americans can live beyond their means is that the Chinese are living beneath their means," said Peter Schiff, president and chief global strategist at Euro Pacific Capital, at a seminar held by the Council on Foreign Relations in New York.

The Chinese currency rose to a 17-year high this week, which analysts said could help ease the country's consumer inflation by reducing import costs. China's consumer prices hit 4.9 percent in January and the February data are scheduled to be released on Friday.

The US is "printing so much money" and shipping the excess dollars to China, that it is causing increased liquidity in China and stoking price rises, Schiff said at the seminar.

Some US politicians have accused China of manipulating its currency and claimed the manipulation harms the US economy by thwarting its exports to China.

China says it has adopted a managed and floating exchange rate regime that reflects demand and supply. The yuan, as a result, have appreciated by nearly 26 percent since July, 2005.

"I don't think what China is doing is manipulation. There was a manipulator, but not necessarily China because the biggest beneficiary (of the game), at least in the short run, is America," Schiff said.

"America is manipulating its currency," he said, and China is simply trying to maintain the stability of the yuan against the dollar.

"We enjoy Chinese-made goods without paying for it because we just print the money," he said.

Schiff said the current US budget plan would be impossible without the help of China as a lender and the country's CPI wouldn't be as low without the relative balance between the yuan and the dollar.

Even if the yuan appreciates, it will not change the US trade deficit with China because of the limited availability of "Made-in-America" products. "The real reason we are importing so many products from China is that we cannot afford to make this stuff ourselves," he said.

The rules, regulations and taxes laid on US companies have made them uncompetitive, not the high wages. Countries with high wages, such as Germany and Japan, enjoy trade surpluses with China, he said.

China-related issues such as currency revaluation and the trade imbalance seem important to the US, but the real concerns should be its lack of competitiveness and trade deficits, Eswar Prasad, a senior fellow at the Brookings Institution, told China Daily.

"There are lots of debates about US fiscal deficits. That's really a serious problem, which has constrained the US enormously," said Prasad, who is also Tolani Senior Professor of Trade Policy at Cornell University.

Ultimately the world's largest economy has to reduce government spending and raise taxes to meet the huge burden of public debts. That's going to have serious impact on US productivity, Prasad said.

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"China seems very important, but ultimately it is not what China does, but what the US does. The key issue is US competitiveness and productivity," he said.

If the trade relationship between the two countries fares well, it will bring lots of mutual benefits, he said.

China might be the only country that allows US President Obama's exports plan to happen, said Shangjin Wei, professor of Chinese Business and Economic at Columbia University. Obama has promised to double US exports by the end of 2014.

China's Commerce Minister Chen Deming has repeatedly said that the country will import more from the US in the coming years to reduce the bilateral trade imbalance.

Wei said the US deficit with China is not a unique phenomenon. Besides China, the US runs deficits with the European Union, Canada, Mexico, India and a number of other countries. "It's in China's interests to make its currency more flexible, but it won't do too much in reducing the current US deficit," Wei said.

Chen Weihua contributed to this story.


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