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Boston Herald, 08/05/07

Bills are moving in Congress aimed at forcing China to cheapen its currency quickly. They represent bad ideas that could hurt the U.S. economy.

It’s in China’s interest to make its currency more expensive, and it is slowly doing so. Any official U.S. action aimed at producing an acceleration is likely to put the backs of Chinese officials up and could provoke retaliation.

No conceivable revaluation of the yuan could affect China's $233 billion trade surplus with the United States much or lead to a significant shift in production of anything to the United States.

U.S. importers would turn to other countries for shirts, tools or whatever, at higher prices - in effect, a sales tax on U.S. consumers.

Chinese retaliation could cut exports of aircraft, software, machinery, locomotives and other things. That risks a trade war, always a good way to produce recessions or worse.

The latest bills, approved by two Senate committees, ignore the 27.5 percent increase in tariffs on Chinese goods that previous bills featured.

Instead, they would require such measures as the filing of complaints with the World Trade Organization, stiffer rules for so-called “anti-dumping� penalties or international campaigns to force up the yuan.

The White House has threatened vetoes.

China used to tie its currency to the dollar, but two years ago switched to a “crawling peg� of gradual small changes. Since then, the yuan has risen about 9 percent against the dollar, and Chinese officials say they will keep pushing it up, but only on their own timetable. Against all currencies collectively, however, the yuan has been stable or falling because the euro has been rising.

An undervalued yuan - not all economists agree that it is undervalued - holds down Chinese interest rates and consumer purchasing power. A more expensive yuan would bring much-needed balance to the Chinese economy.

Treasury Secretary Henry Paulson is just back from his fourth trip to China to try jawboning as a way to boost the currency.

He says high officials there told him they were “committed . . . to currency reform.� Paulson’s trips at least have the virtue of keeping the issue on China’s domestic agenda.

Anything more could be counterproductive.

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