The US Senate passed the Currency Exchange Rate Oversight Reform Act of 2011 on Tuesday, despite opposition from many leaders including President Barack Obama and House Speaker John Boehner. Some pointed out that the US is playing a two-faced performance to put pressure on the appreciation of the yuan. No matter whether this is true or not, China can relax.
If the US wants to force the RMB to appreciate, it should have an overwhelming advantage over China in trade. But it does not.
The Chinese market currently contributes most to US export growth. If the act becomes law, it will certainly trigger a trade war between China and the US. This is not something the US desires or can afford.
The US economist Lawrence Summers once described the Sino-US economic pattern as a "balance of financial terror," a commonly accepted conclusion. The US and China both have trade and economic chips that could be deadly to the other. Now the US is using them to threaten China, we can feel its uncertainty.
Charles Schumer, Senator from New York, is the initiator of the bill. Having been a congressman for 31 years, his most famous "achievement" is finding trouble with China over the RMB issue, which he has used to gain votes. But it seems his aggressiveness on the issue is partly due to his knowledge that the bill will never become law.
A foreign target is needed to shift domestic attention away from the frail US economy. The RMB definitely fills this need. However, a funny fact is that the RMB has risen by about 30 percent in five years while the US unemployment rate has increased from 7 percent to 14 percent.
China does not necessarily follow the US plan. The worst trade scenario between China and the US is the US raising tariffs on Chinese exports. Should this happen, China has many countermeasures.
The US will pay the price if a big regression in Sino-US trade relations really occurs, although this seems impossible.
Small economic frictions may be cost-effective when the two are fiercely clashing with each other in other fields as they can help find a balance.
To some extent, conflict could make the Sino-US relationship stronger and more flexible. As two countries who are cautious of each other but have close trade and economic ties, who can be certain that there will be no conflicts? Therefore, it is not a bad thing that the two are practicing how to deal with frictions.
Let the US continue its performance. We need not waste resources to influence the decision. What we should do is to prepare ourselves for challenges from the US.