Going Global: Can Asia Cure U.S. Trade Gap?; Big Imbalance May Persist Even If China, Others Free Currencies
Paris -- FRUSTRATED THAT THE dollar's three-year decline has failed to make a dent in the record U.S. trade deficit, U.S. and European policy makers are turning up the heat on Asian countries, particularly China, to share more of the burden in righting the world's massive economic imbalances.</br></br>They should be careful what they wish for, however. If China does agree to unhitch the yuan from the dollar -- or at least give it some wiggle room -- it might not have much impact, leaving the U.S. with its huge trade deficit and Europe with a too-strong currency, uncompetitive industries and poor economic growth, just as it exists now.</br></br>On the other hand, a move to really disconnect the yuan and other Asian currencies' ties to the dollar could send U.S. interest rates higher and the American economy lower.</br></br>Last week, European Central Bank chief economist Otmar Issing opened the West's verbal assault on the East, arguing that the euro's rise and dollar's fall had gone far enough and that it was Asia's turn to carry the can. "In terms of foreign-exchange developments, we see at the European level the adjustment is completed and has even gone too far," Mr. Issing said in a speech. "The key to this problem . . . lies in Asia and above all in China's hands, but China is not addressing this because of its internal problems."</br></br>Two days later, departing U.S. Commerce Secretary Donald Evans, New York Federal Reserve Bank President Timothy Geithner, ECB President Jean-Claude Trichet and Paul Jenkins, senior deputy governor at the Bank of Canada, joined the pick-on-Asia chorus. Mr. Trichet noted the "clear consensus amongst the international community . . . on the fact that there is a need for emerging Asia to go progressively in the direction of perhaps progressive and orderly appreciation of the sub- currencies." Translation: Asian nations with currencies pegged to the dollar should stop keeping them artificially low.