Tagging the yuan as a scapegoat is unfair

As if the world economy wasn't fragile enough, politicians in the United States and China seem intent on fighting an old-fashioned currency war. The US is more wrong than China here, and it's important to understand why, lest the two countries send the world back to the dark age of beggar-thy-neighbor currency protectionism.

The battle concerns China's decision to peg its currency, the yuan, to a fixed rate of roughly 6.83 to one US dollar. To hear the American political and business establishment tell it, this single price is the source of all global economic problems. The peg keeps the yuan "undervalued" in this telling, fueling China's exports and harming the US, Europe and everyone else. If the Chinese would only let the yuan "float," it would soar in value, China's export advantage would fall, and the much-despised "imbalances" in global trade would end.

US President Barack Obama has picked up this theme, calling last week for Beijing to adopt "a more market-oriented exchange rate" that "would make an essential contribution to that global rebalancing effort." Less diplomatically, 130 Members of Congress sent a letter to Treasury this week demanding that unless China lets the yuan rise in value, the US should impose tariffs on Chinese goods. Just what the world needs: a trade war.