The Ongoing Battle

The contenders? The Irresistible Force of the U.S. Government vs. the Immovable Object of the Chinese Yuan.

According to Reuters.com, the House of Representatives passed a bill to pressure the Chinese government to appreciate its currency Yuan on Sept. 29. By a vote of 348-79, both Democrats and Republicans supported to impose “countervailing duties” on imports deemed to be unfairly state-subsidized. In the past few years, China has gained enormous trade surplus by exporting cheap goods to the world, especially America, while the U.S. has suffered greatly from trade deficit. One effect of this huge trade deficit is the loss of jobs in the American labor market.

Notice that since Sept. 2, the Yuan has climbed again more than 1% a month, and appreciated 20% between 2006 and 2008 according to the U.S. Treasury. A 1% increase in currency value is a significant figure in economics, but Congress still demanded a faster appreciation of Chinese Yuan. Why did Congress firmly take a risk of damaging the bilateral relationship between two giant powers in the world? One possibility is that candidates for 2010 midterm elections need strong support from the discontented public.

Yes, the economy has not fully recovered from the crisis last year. American people WANT jobs! However, the unemployment rate is still high. From TradingEconomics.com, Reuters, the unemployment rate in Sept. 2010 was 9.60%, which is pathetically similar to the unemployment rates in the past nine months. Voters have examined their government's performance retrospectively, and are closely watching each step made on the road to economic recovery. The midterm elections are a great opportunity for both Democrats and Republicans to win support.

Now, on an international level, the U.S. Treasury Secretary Timothy Geithner is struggling to pass a proposal of “setting numerical targets for external imbalances” in the G-20 Summit in South Korea. Hopefully, a comprehensive currency deal, which will provide a range of criteria for judging a nation’s economic policies, will be finalized in the G-20 Seoul Summit on Nov. 11 and 12. Domestically, we will also wait and see whether this bill on “countervailing duties” will be passed by the Senate after midterm elections, and eventually signed by the President.