Friday, October 1, 2010

U.S. Yuan Bill: From Currency War To Trade War

image Just days after the reports of possible currency wars between nations have been in the limelight, after the drop in the US Dollar's value was attributed to the Federal Reserve’s willingness to continue quantitative easing, Beijing's Foreign Ministry has warned that the upcoming House of Representatives bill to penalize China for not letting the Yuan rise faster could seriously affect bilateral ties between the two giant nations.

The comments come after The U.S. House of Representatives began debate on legislation to put pressure on China to let its currency rise faster, fanning the flames of a long-running dispute over trade and jobs. The measure is most likely to be discussed in the U.S. congressional election on Nov. 2, with voters worried about their jobs and a sluggish economy. The Bill if passed would open the door to extra duties on Chinese goods entering the United States, some of which are already subject to special levies.

China's Foreign Ministry spokeswoman Jiang Yu has suggested that the US Congress should avoid steps that could harm relations between the two nations with Beijing being strongly opposed to the bill. Currency and economic experts don’t expect China to take things lying down and might be forced to retaliate if the bill is indeed signed into a law by President Obama. China Meanwhile has adopted a wait and watch approach as of now, but the if the statements coming out from Chinese sources are a barometer of the Chinese mindset, then we might be just sitting at the transition of currency wars into an ego and Trade war.

Obama and Chinese Premier Wen Jiabao had earlier discussed the issue about China's currency and huge trade surplus on the sidelines of the U.N. General Assembly last week.

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