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Protectionism the threat

(China Daily)
Updated: 2009-10-17 11:38

China does not manipulate its currency. The conclusion of the United States Treasury Department report is welcome, but we should not be blinded by the heightened pressure on yuan appreciation and the protectionist sentiment swirling around it.

Recognizing that the value of China's currency has risen by more than 21 percent since July 2005, the report did not name China as a manipulator of its currency. But it's not the end of the story.

Sander Levin, chairman of the US House Ways and Means trade subcommittee, said after the report was issued that he "felt" some countries were manipulators, according to a Reuters report.

A more blatant signal was sent by the Group Seven nations in their meeting in Turkey pressing China to strengthen the yuan early this month.

The currency issue, however, is in essence one of trade and protectionism.

Despite the tentative signs of economic recovery in a number of developed economies, the jobs market is yet to recover at an equal pace. Economists estimate that the lag could be up to a year.

Industrial interest groups have therefore added to pressure on their governments to take bolder protectionist steps.

It explains the paradox that as the world economy shows signs of recovery, protectionism seems to be surging, not abating.

As a sign of that worrying trend, China has fallen victim to 88 trade remedial investigations by far this year, accounting for 57 percent of the world's total value of investigated products, according to the Ministry of Commerce. Trade remedies are policy tools that allow governments to take remedial actions, including anti-dumping action, countervailing duty measures; and safeguard action, against imports, which are "causing material injury to a domestic industry".

Some countries have taken all possible measures that could undermine China's exports to give a shot in the arm of their trade sectors. Such a shot, however, hardly heals in the longer term, if they fail to redress their own economic structural imbalances, which lie behind their trade deficits.

On the other hand, the memory remains fresh that a large number of workers have lost their jobs in China's coastal manufacturing industries since last year, menacing both the economy and social stability.

Now while China's trade has just shown initial signs of bottoming out, global protectionist sentiment seems to be surging, which will cost the country large numbers of jobs in the trade and manufacturing sectors.

In the shoemaking industry alone, about 20,000 jobs have been lost thanks to the EU's anti-dumping duties imposed on Chinese products since 2006. The EU is planning to extend the duties for another 15 months.

Related readings:  Protectionism has no room in free trade  Weeds of protectionism  It is the West which uses protectionism  Expert: Protectionism no cure to economy

The US savings rate is rising, at least tentatively, which is good news for global economic rebalancing. Meanwhile, China has taken bold steps to increase domestic consumption to balance its exports.

Given the trade remedy measures China has suffered, that effort has not been adequately heeded.

The world economy has started to recover, but it remains vulnerable. It would be very dangerous if trade wars erupted. It could slow down the recovery process, which would not benefit anyone.