The intensifying US pressure on China to revalue the yuan is more about job creation in the US than its merchandise trade deficit with China.

Despite signs of an economic recovery, the US unemployment rate continues to hover around 10 percent. Many economists have professed that the driving force of a sustainable recovery must come from manufacturing. Understandably, job creation has become a top priority of US President Barack Obama's administration in combating the economic woes resulting from the fallout of the credit crisis.

Before the crisis broke out in 2008, the US manufacturing sector was enjoying a revival accompanied by an increase in merchandise exports. This had led to a strong demand for skilled workers by manufacturers in various industries across the country.

The credit squeeze in the past couple of years has sucked the life out of this export drive. As funding dried up, many businesses were forced to shelve their expansion plans. Some had chosen to shrink their operations and trim their workforce to cut cost.

What's more, the financial crisis has so crippled the services sector that it can no longer be counted on to reignite the economic growth engine in coming years, or to create sufficient new jobs to bring the unemployment rate down to socially and politically acceptable levels. For that reason, the Obama administration is under tremendous pressure from political friends and foes to help US industries by promoting exports.

To do that, many people both inside and outside the US government believe that there is an urgent need to eradicate what they perceive as unfair competition from the emerging economies, particularly China, with their vast supply of low-cost labor and their undervalued currencies. The contention culminated earlier this week in a joint plea by more than 100 US legislators to President Obama for action against China on the currency front.

The nagging problem of high unemployment is leaving Obama with little room to maneuver. The clash will come to a head on April 15 if the US officially labels China a currency manipulator. That would inevitably trigger a series of action that could lay the ground for the US to impose a surcharge on imports from China.

Most level-headed government officials, economists and businesspeople are well aware of the fact that a trade war can harm both sides. And the argument that a revaluation of the yuan could help trim the US trade deficit with China has been brought into question time and again. What's more, the US, no doubt, understands that trade protectionism will hurt its consumers and many businesses sourcing from China and other emerging economies.

But the currency issue is unlikely to dissipate after an exchange of words. In the US, consumer benefits and the corporate bottom lines are of secondary consideration compared to job creation. The US government must be seen to be doing something about the issue.

China, of course, doesn't consider its currency to be undervalued. And it can take retaliatory actions against any form of trade sanction by the US. But taking on the US is not necessarily the best policy.

Averting a full-blown trade war is.

It may make sense for China to show that it's sympathetic to the problems of its trading partners by taking voluntary actions in mitigating its export growth. Some economists have recommended the deferral of export tax rebates which were raised a number of times in the past couple of years when the export sector was hit hard by the global economic slump. Others, including celebrity scholar Lang Xianping, suggest the introduction of a quota system to even out the year-on-year growth of exports.

The US may be wrong to blame its problems on its trading partners. But this is not the time for finger pointing. There is a real problem to be solved by high diplomacy.

jamesleung@chinadaily.com.cn

(China Daily 03/20/2010 page5)