German minister warns of global trade war
October 12, 2010 Leave a comment
BEIJING (AFP) – German Economy Minister Rainer Bruederle cautioned upon arriving in China Tuesday that a global trade war was brewing, amid wide differences between key trading nations on currency policy.
“The danger of a trade war has appeared on the horizon,” Bruederle told reporters travelling with him on his two-day trip to China, which was to take in Beijing and Shanghai.
“The danger is that complaints about currency undervaluing lead to retaliatory measures, which could eventually turn into a trade war,” the minister said, without specifying a particular country.
Beijing has come under increasing pressure from its trading partners in the United States and Europe to allow the yuan to appreciate faster. Critics say the unit could be undervalued by as much as 40 percent.
The US House of Representatives last month passed a bill that would expand the Commerce Department’s powers to slap tariffs on China for currency manipulation, rather than just outright subsidies.
The legislation must still go through the Senate and eventually be signed by President Barack Obama to pass into law.
Bruederle said while China was unlikely to ever have a completely flexible exchange rate, “a bit more flexibility would be desirable”.
The spectre of a global currency war dominated the annual meeting of the International Monetary Fund in Washington over the weekend, but no agreements were reached.
“We must not allow the situation to get out of hand, or turn our backs on free trade,” Bruederle said, adding that he saw himself as an “ambassador, perhaps even a missionary, for the fight against protectionism”.
Bruederle said his talks with Commerce Minister Chen Deming and Zhang Ping, the head of the country’s top economic planning agency, the National Development and Reform Commission, focused on “management of liquid assets”.
China has the world’s largest foreign exchange reserves, which surged to a record 2.454 trillion dollars at the end of June, according to the central bank.
Trade between China and Germany, the world’s top two exporting nations, has grown rapidly — to 91 billion dollars last year, up from 41 billion dollars in 2001, according to Chinese data.
However, in the past few years the trade balance has tipped decisively in China’s favour, with Chinese exports to Germany totalling 55 billion dollars last year, while trade in the other direction amounted to 36 billion dollars.
Bruederle will stand in for ailing German Finance Minister Wolfgang Schaeuble at the upcoming Group of 20 summit in South Korea, where he said he hoped the world’s major economies would come up with “reasonable solutions”.
After his visit to China, which will includes a stop at the World Expo in Shanghai on Wednesday, Bruederle will head to Japan.