Economy

Chinese currency not cause of US economic woes

(Xinhua)
Updated: 2010-09-20 21:35

BEIJING - Structural problems with the United States rather than China's currency were responsible for the current difficulties facing the world's largest economy, an economist said on Monday.

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"The current anti-China moves in the U.S. Congress are purely a publicity attempt to distract attention from the real problems facing the US economy," John Ross, a visiting professor at Antai College of Economics and Management, Shanghai Jiaotong University, told Xinhua.

Ross' words come one week after 93 US lawmakers signed a letter urging Democratic leaders in the House of Representatives to schedule a vote on a bill to get tougher with China.

The bill would allow the US Commerce Department to slap countervailing and anti-dumping duties on "injurious imports from any country that persistently undervalues its currency."

Ross, former director of economic and business policy for mayor of London Ken Livingstone from 2000 to 2008, said the Chinese currency was not the root cause of the United States' trade deficit with China.

Many economists attribute the difficulties facing the US economy in the form of high unemployment and staggering fiscal deficit to the structural problems that the present administration has not been able to address.

"The problem in the US economy is that its savings level is so low that it cannot even finance its own investment," said Ross.

During the last two years, capital consumption in the United States exceeded savings in the country, which meant that the world's largest economy was not actually creating any capital at all, he said.

"This has not been seen in America since 1929-1932 at the beginning of the Great Depression."

Even with a stronger Chinese currency, "no extra jobs would be created in the US, and US consumers would simply have to pay higher prices," he said.

"America does not competitively produce the great majority of the goods which China exports, so even if Chinese products were kept out of America, they would be replaced by imports from other low cost producers."

The only way for the US economy to recover was to sharply increase its own savings level so that it could finance its own investment and not rely on inflows of capital from abroad, he said.

Many analysts have said that increasing the Chinese currency's exchange rate would not reduce China's trade surplus.

"Indeed, the reverse would occur. This was already seen in the 2005-2008 period when the RMB's exchange rate went up by over 20 percent and China's trade surplus increased," said Ross.

China's trade surplus with the United States mainly stemmed from the international division of labor and the specific development stage of China's economy, he said.

Ross said that "what leads to China's trade surplus falling is rapid expansion of China's economy, as was seen in the first eight months this year."

Official trade data showed that China's trade surplus continued to narrow in August, which totaled $20.03 billion in August compared with July's $28.73 billion, on stronger domestic demand.

"If a US Congressman really wanted to improve the US trade balance with China, they would be urging China to expand its economy rapidly."

In addition, there is another role for the United States to play.

"The US should end the restrictions on exports of various types of goods to China so that US exports could rise even more rapidly," said Ross.