China Warns of Trade War With US

An angry China warned Washington on Tuesday that passage of a bill aimed at forcing Beijing to let its currency rise could lead to a trade war between the world's top two economies.
China's central bank and the ministries of commerce and foreign affairs accused Washington of "politicising" currency issues and putting the global economy at risk after U.S. senators voted on Monday to start a week of debate on the bill.

The response suggested China sees a greater risk from the proposed bill than it has in the past when U.S. lawmakers attempted to put forward similar legislation to speed up the pace of appreciation in the yuan, or renminbi.

US taxpayers could be on hook for Europe bailout

The U.S. is coming to Europe's financial rescue.

So far, America's role is fairly limited. But if the crisis continues to grow and the U.S. takes on a wider role, U.S. consumers and taxpayers could feel a bigger impact. The biggest exposure could come from America's status as the single largest source of money for the International Monetary Fund.

The latest round of American financial assistance came Thursday with a promise by the Federal Reserve to swap as many dollars for euros as European bankers need. In the short run, those transactions won't have much impact because the central banks are simply swapping currencies of equal value. If the move helps avert a wider crisis, it could help spare the global economy from another recession.

But over the long term, consumers could feel the impact of central bankers flooding the financial system with cash, according to John Ryding, chief economist at RDQ Economics.
"This is a lender of last resort function," he told CNBC. "With the dollar injections that the Fed has done, it's like giving a patient medicine with really bad side effects." Ryding said the bad side effect in the U.S. has been inflation, which has picked up to 3.8 percent year over year.

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It takes no great genius to predict that unless something changes radically, and soon, America is headed for a spate of social unrest. And there’s a reasonable chance that it could turn violent, warns Gary Younge.

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S&P Chief: 1-in-3 Chance of Another U.S. Downgrade

John B. Chambers, a managing director of Standard & Poor’s, said today that there is a one- in-three chance of another U.S. debt downgrade, though a change may not occur until late 2012 or 2013.
“If there were another downgrade, it would probably be because something has happened with the budget control act, that it has somehow been watered down” or “the fiscal committee doesn’t deliver the goods,” Chambers said. “Hopefully things turn around” and fiscal restraint “would enable us to see the ratings stabilize.”

S&P on Aug. 5 lowered the country’s long-term rating one level to AA+ and kept the outlook at “negative,” saying it was becoming less confident in lawmakers’ ability to tackle the deficit. Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended a debt-ceiling impasse that had pushed the country to the edge of default.

Instead of falling in value after S&P said the U.S. was less creditworthy, Treasuries rallied and the government’s borrowing costs fell to record lows. While stocks fell, wiping $2.5 trillion from the market value of global equities on the first trading day after the downgrade, the gain in benchmark 10- year government notes sent yields down almost a quarter percentage point, to 2.32 percent. Yields have continued to fall, reaching 2.08 percent today.

China Says it Won't Bow to U.S. On Yuan

China will not permit a significant appreciation of its currency even if the United States passes a bill forcing China to do so, the official Xinhua news agency said in an editorial on Friday.
"China will not blindly, because of pressure from a bill in another country's congress, let its currency rise," Xinhua said, in response to recent comments made by Senate Democratic Leader Harry Reid on the Chinese currency.

Reid said the Senate will try to pass legislation in coming weeks aimed at forcing China to stop holding its currency below market value.

Many U.S. lawmakers and economists say China deliberately undervalues its currency, the yuan, against the dollar to give its companies an unfair price advantage in international trade. China rejects this criticism.

Xinhua said Reid has "stepped into a serious mistaken zone" over the yuan issue.

It said a stronger yuan won't help the U.S. labor market, and Reid is using China's currency as a scapegoat for deep-rooted structural problems in the U.S. economy.

Senate leader vows push on China currency bill

The Senate will try to pass legislation in coming weeks aimed at forcing China to stop holding its currency below market value, Senate Democratic Leader Harry Reid said on Tuesday.


Many U.S. lawmakers and economists say China deliberately undervalues its currency, the yuan, against the dollar to give its companies an unfair price advantage in international trade. China rejects this criticism.

"One of the things we're going to do is Chinese currency, which is a jobs bill," Reid told a news conference.

U.S. lawmakers have been threatening legislation since 2005 to punish Chinese exports with tariffs designed to offset the effect of China's stockpiling of U.S. dollars to hold down the value of the yuan, also called the renminbi.

The closest any currency legislation has come to passage was last year, when the Democratic-controlled House of Representatives passed a bill, but the Senate took no action.

With Republicans now controlling the House and signaling they want to focus on other China trade issues, it is not clear Reid's bid will succeed.

Reid's renewed drive for a currency bill comes amid angst about stubbornly high U.S. unemployment and the huge U.S. trade deficit with China, which hit a record $273 billion in 2010 and could surpass that this year.

The yuan, which traded at around 6.4 per dollar on Tuesday, has risen about 3 percent so far this year and 6.7 percent since its depegging by the Chinese government in June 2010.

Reid said he would bring up the bill after the Senate votes on disaster aid, highway funding and legislation related to trade agreements. He said the Senate would produce a stand-alone bill with the support of opposition Republicans.

REPUBLICAN SEES MISTAKEN FOCUS

Analysts previously thought lawmakers might attach currency legislation to a trade bill as part of the process of passing U.S. free trade pacts with Colombia, Panama and South Korea.

The left wing of the Democratic Party opposes those trade pacts and Reid's gesture could be a sop to them.

A Democratic aide said the party had not decided which of the competing currency bills from 2010 to pursue. Each of the proposed bills would make it easier for the U.S. government to take punitive action against China over the yuan.

Last year, the House passed a bill treating "undervalued currencies" as an export subsidy. It died in the Senate but would have allowed U.S. companies to seek countervailing duties on a case-by-case basis against imports that benefit from China's currency practices.

Republican leaders who now control the House have shown little enthusiasm for China currency legislation.

Earlier on Tuesday, Representative Kevin Brady, who chairs the House Ways and Means subcommittee on trade, said it would be wrong to "punish" U.S. consumers for China's currency practices by slapping duties on Chinese goods.

He said lawmakers "made a mistake" in the past by focusing exclusively on exchange rate concerns when there were so many other challenges in the U.S.-China trade relationship.

"China's currency is a perennial problem and a high priority but it is not the only challenge facing us," Brady said in a speech to the business group USA Engage.

The House Ways and Means Committee plans a hearing in "early fall" on China trade concerns, Brady said.

"We will focus on the full range of issues inhibiting U.S. companies from selling their goods and services in China, including Chinese indigenous innovation requirements, subsidized capital, directed lending policies, intellectual property theft, and restrictions on exports of key raw materials and a closed capital account," he said.

Some Republican candidates competing to challenge President Barack Obama in the November 2012 election have also lashed out at China's currency and trade policies.

Candidate Mitt Romney, unveiling his job creation plan last week, said on his first day as president he would "clamp down on the cheaters" by slapping duties on Chinese imports if Beijing does not move quickly to float its currency.