Long a source of displeasure in the U.S., China's long-standing policy of keeping its currency artificially low to boost exports may be on the verge of provoking a full-fledged trade war. Treasury Secretary Timothy Geithner has repeatedly urged China to institute a more flexible rate of exchange, and a congressional bill demanding the country raise the value of the yuan could require punitive tariffs on Chinese exports in months ahead. The International Monetary Fund is warning that a "global currency war" may be in the offing. Is it a fight worth picking? (Watch Tim Geithner press China on currency reform)
We must take on China aggressively, and quickly: The congressional bill is a "shot across the bow" at the Chinese, says Paul Krugman at The New York Times, and "a step in the right direction." China's defense of its policy is "implausible and wildly inconsistent," and it is long past the time for diplomacy. The Obama administration must now make a real "threat of retaliation" or watch the recession continue indefinitely.
"Taking on China"
The aggressive approach is liable to backfire: "The war of the world currencies has begun!" says Eric Rosenbaum at The Street. Some argue the "UN-like call to currency arms" adopted by Tim Geithner should give way to a "Teddy Roosevelt, U.S. 'for us or against us' unilateral big stick approach." But investors are not in favor of this "hardline approach" — a "foreign exchange campaign of shock and awe" will only put China on the offensive.
"Wage China currency war with light armor, investors say"
A trade war is in no one's interest — particularly America's: China has the upper hand in this fight, says Douglas A. McIntyre at Wall Street 24/7. If it stops buying dollars, our currency will nosedive. We'll have to "raise interest rates to attract more investment from the capital markets" — but that would damage China's investments, too. The truth is, waging a currency war would be an "imprudent decision on the part of either side." But that doesn't mean it won't happen.
"Currency wars: the referee fired, the sport begins"