SLUGGISH EMPLOYMENT: Applicants fill in registries at a job fair in Washington, D.C. (ZHANG JUN)

Recently, the United States has been pressing China hard, urging it to strengthen its currency, the yuan. On October 11, the U.S. Senate passed the Currency Exchange Rate Oversight Reform Act of 2011, which requires the U.S. Government to impose penalty tariffs on the U.S. major trade partners whose exchange rates are undervalued. This act is clearly directed at China.

The act faces strong resistance in the House of Representatives. Speaker of the U.S. House of Representatives John Boehner reiterated on October 25 his opposition, saying that it is "a very dangerous policy."

According to Daniel Griswold, Director of the Center for Trade Policy Studies at the Cato Institute, it will be a huge mistake if the United States forces China to appreciate the yuan by raising tariffs on Chinese products. The most direct consequence will be price hikes, which will increase the burden on consumers and further affect the U.S. economy.

The United States should not keep accusing China, but actively adjust the economic structure, reduce its fiscal deficit and public debt so as to correct its serious economic imbalance.

An old issue

The United States raised the yuan exchange rate issue in 2003. It claimed the yuan exchange rate caused its huge trade deficit against China and led to the imbalance of the world economy.

The United States insisted that the yuan exchange rate hampered the depreciation of the U.S. dollar, making it difficult for the United States to adjust its current account deficit.

Further, it claimed undervaluing of the yuan impeded the appreciation of other Asian countries' currencies against the U.S. dollar, which directly or indirectly distorted prices, resulted in the imbalance of the world economy and further led to irrational allocation of the resources. Should this situation continue, the future adjustment would cost a great deal for China, the United States and the world.

In short, the United States blames its huge trade deficit and the loss of millions of jobs in U.S. manufacturing sector on the yuan exchange rate.

It regards China as a key country in adjusting the imbalance of the global economy, since China manipulates the exchange rate and hinders the global adjustment process. If the yuan does not appreciate, the global economy will face serious risks.

Some U.S. congressmen believe the undervaluing of the yuan proves that China's rise has formed a real threat for the United States. It is not a military threat, but a threat of employment replacement. The threat is not only directed at labor-intensive, low value-added manufacturing, but also at technology-intensive, high value-added manufacturing as well as the service sector. It is not only a threat for U.S. national security, but also for U.S. labor security.

Since 2003, the U.S. Congress has proposed dozens of bills on this issue. All these bills have a common goal—to push for a quick appreciation of the yuan. They only differ in the specific measures they propose to achieve this goal. So far none of these bills have passed.

False premise

In fact, the appreciation of the yuan cannot solve the domestic problems of the United States.

Exchange rate adjustment, especially between the United States and China, will not do much good to solve the U.S. multilateral trade deficit. Take textiles and clothing for instance. If the United States does not import from China, it may still import from other countries, such as Bangladesh, Pakistan and other countries. Therefore, the appreciation of the yuan will not enhance the U.S. status in global trade. Neither will it help with U.S. employment.