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CHINA ACCUSES U.S. OF POLITICIZING YUAN AS TRADE SURPLUS SINKS

Bloomberg, March 22, 2010

China warned the U.S. against imposing sanctions over the value of the yuan, arguing that the exchange rate issue has been politicized and that a rise in protectionism threatens the global economic recovery.

Pressure on China to strengthen the yuan does “no good to anyone,” China’s Commerce Minister Chen Deming said at the China Development Forum in Beijing yesterday. China’s trade balance likely slipped into the red in March, although the yuan was stable, showing that exchange rate changes have a “limited” impact on trade, Chen said.

Tensions over China’s currency are mounting, with President Barack Obama facing increased calls from U.S. lawmakers to step up pressure on China for keeping its exchange rate artificially low. Chen yesterday warned that sanctions against China that amounted to protectionism would hinder growth and raise the risk of a “double dip recession.”

“No matter how tough both sides sound now, they’ll eventually come back to the negotiation table for a mutually beneficial solution” as any U.S. sanctions will be detrimental to both, Li Wei, an economist with Standard Chartered in Shanghai, said in a phone interview.

In March, China will probably record its first trade deficit since April 2004. The surplus had already narrowed to a one-year low of $7.6 billion in February after a 34 percent decline last year. The U.S. trade deficit was $37.3 billion in January, shrinking from a record $67.8 billion in August 2006 as American consumers slowed spending amidst the recession.

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