Co-ordination best way to tackle trade gap

Co-ordination best way to tackle trade gap

America's trade deficit with China has increased to US$145 billion this year. This is bigger than the total trade gap with its next seven-largest trading partners. The US believes the only solution to this problem is to push up the artificially low value of the yuan, which critics say has given China an unfair advantage. The US administration is very determined on this issue.

Recently, the House of Representatives passed a bill to impose import duties on countries which have undervalued currencies.

If the bill becomes law after being approved by the Senate and the President, it could set off a trade war and everybody would lose.

Mainland exports to the US would shrink, dampening the country's economic development. On the other hand, Beijing could retaliate by imposing similar restrictions on US goods. With China being its fastest-growing market, the US, too, has a lot to lose in a trade war.

Moreover, it would be meaningless because the yuan exchange rate is not the key to addressing the Sino-US trade deficit. From 2005 to 2008, the yuan appreciated by 21 per cent against the dollar while China's trade surplus with the US increased by 20.8 per cent annually. Although the price of Chinese goods has risen, the demand for them continues to grow.

Sino-German trade proves that expanding exports to China, instead of limiting imports from the country, is a more effective means of tackling the trade imbalance. Germany has reduced the trade gap with China by boosting exports - mainly hi-tech equipment and luxury vehicles - to the country.

Like Germany, the US makes hi-tech products, while China specialises in cheap goods.

Prime Minister Wen Jiabao said: "It is better to have dialogue than confrontation, co-operation than containment, and partnership than rivalry."

He is right. A good relationship surely makes both the US and China winners, while hostility merely creates losers.

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