Two Ways to Ease U.S.-China Economic Tensions

February 13, 2012

Two Ways to Ease U.S.-China Economic Tensions
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Two familiar sources of economic tensions between the United States and China are bubbling up early this year but there are opportunities for collaborating to resolve each, says CFR’s Sebastian Mallaby.

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At about the same time of Vice President Xi Jinping’s visit, efforts were underway in the United States to "enforce U.S. trade laws more aggressively," with China uppermost in mind, says Mallaby.

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The second point of tension is China’s currency, the yuan. "There is this longstanding concern that China manipulates its exchange rate, giving itself an unfair advantage in exporting, and particularly at a time when global growth is anemic in much of the world," Mallaby says.

The danger, Mallaby emphasizes, is that these tensions may "feed on themselves, with suspicion and counter suspicion," and says it is necessary to "break that cycle." Possible ways to reach common ground, Mallaby proposes, may involve offsetting trade disputes with "positive initiative on the investment side," including attracting Chinese investment into the United States. On the currency issue, Mallaby suggests that embracing China’s ambitions to internationalize its currency may "lead China to carry out reforms," which would in turn cause the currency to adjust.

"These are two concrete ideas that we should embrace, that work with the grain, not against the grain, with respect to China, and they’d be a way of making some common ground to offset the inevitable tensions," Mallaby says.

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