Currency Wars - A threat to Global Recovery? Abstract: A drastic yuan appreciation may price many Chinese goods and businesses out of world markets but is unlikely to reverse consumer demand for lower-priced products from efficient producers in the developing world. Rather than changing the fortune of US exports and jobs, a looming global currency war would see no winners. It would only deepen the mistrust between countries, especially the US as the only superpower and China as a rising power, whose mutual cooperation is essential for a speeder economic recovery and grappling with the many global challenges of the coming decades.

The Currency Manipulation Bill has been passed in the House of Representatives with a large majority, targeting China. While many view a full-scale currency war between the US and China as not a very smart idea, with a record-high unemployment rate, depressed blue-collar and even white-collar wages, a struggling economy, and a general perception that American dominance in the world is ebbing away towards a ‘Communist’ China, chances are that in the run-up to the mid-term elections, the President should like to be seen to be keeping his finger firmly on the Bill’s trigger. The irony is that even if Chinese products were entirely priced out of the world market, this may not succeed in turning the tide for US exports and jobs. Consumers in the US and elsewhere are likely to buy similarly competitively-priced substitutes produced by other developing countries. Moreover, as China’s Premier Wen has pointed out, the yuan has appreciated by some 55% since China’s first currency reform in 1994. Since then, this magnitude of appreciation has not helped US exports or reduce Chinese imports. Additionally, net exports account for only 8% of China’s GDP as a great deal of China’s export content is represented by imports of parts, components, materials, proprietary technology and services from other countries. Any appreciation of the Chinese yuan