China accuses U.S. of politicizing yuan as trade surplus sinks

In March, China will probably record its first deficit since April 2004. The surplus had already narrowed to a one-year low of $7.6 billion in February after a 34 percent decline last year. The U.S. trade deficit was $37.3 billion in January, shrinking from a record $67.8 billion in August 2006 as American consumers slowed spending amidst the recession.

The decline in China's trade surplus failed to appease U.S. lawmakers because 73 percent of the gap was with the U.S., Chen said. That was mainly because of curbs on exports to China, including technologies and parts that China wanted, he said.

Increased Chinese spending is a better way of reducing trade imbalances, Morgan Stanley Asia Chairman Stephen Roach said March 19 in a Bloomberg TV interview. “We're lashing out at China rather than tending to our own business,” which is raising U.S. savings, Roach said.

China has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.

Growth Hindered

Global economic growth would be about 1.5 percentage points higher if China stopped restraining the yuan and running trade surpluses, Paul Krugman, Princeton University professor and Nobel laureate in economics, said at an Economic Policy Institute event in Washington on March 12. He said the U.S. may need to get more aggressive in its talks with China, perhaps by treating the exchange-rate as a countervailing duty or other export subsidy.

“We have a world economy which is depressed by China artificially keeping its currency undervalued,” Paul Krugman, Princeton University professor and Nobel laureate in economics, said in a March 19 interview.

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