China urges U.S. to stabilize dollar

China Asks US to Help Stabilize Dollar

From Agence France-Press
via Yahoo News
Monday, June 9, 2008

http://news.yahoo.com/s/afp/20080609/bs_afp/wtoustradefinanceforex_08060...

GENEVA, Switzerland -- The Chinese ambassador to the World Trade Organization on Monday asked the US to take action to stabilise the dollar, which has fallen sharply in the past year.

During the biennial trade policy review of the world's largest economy by the World Trade Organisation, China also raised its concerns over "rising sentiment of protectionism" in the United States, saying that it could threaten global trade.

"As a major currency for international reserve, the dramatic depreciation of the dollar has lead to shrinking national reserve of many countries and reduced social welfare," China's ambassador to the WTO, Sun Zhenyu, said.

"In this connection, China hopes that the United States ... could take quick and targeted actions to stabilise the US dollar. We hope the US will not tell us this time as they did in the early 1970s, to the Europeans, that 'it is our currency but it is your problem.'"

The euro was trading at about 1.58 dollars in early European trading from 1.34 dollars one year ago.

The ambassador also pointed to a recent move by the US Congress to pass a farm bill that maintains high agricultural subsidies, noting what it calls "rising sentiment of protectionism" in the US.

"China therefore is very much concerned that, if this tendency of protectionism grows unchecked, it may become a threat to the global trade and the multilateral trading system," it said.

In its review of the US trade policies, the WTO also urged the US not to give in to protectionism in the country's attempt to reduce its massive trade deficit.

It warned against any pressures for protective barriers to reduce imports, saying the US should work instead to expand its exports to balance the account.

"The US current account deficit reflects a savings-investment gap; thus, to the extent that this requires a policy response, trade restrictive measures are not appropriate," the WTO said.

It argued that free trade could help the country cut its current account deficit by facilitating US exports.

"Reducing the current account deficit is also likely to require expanding US exports, which would be facilitated by a more liberal trading system and stronger demand growth outside the United States," it said.

The WTO also asked the US to encourage families to save more as it could help reduce this deficit in payments with the rest of the world.

"The United States may require to raise its savings rate while maintaining its traditional openness, which allows US producers and consumers to access goods, services, and capital from abroad at the best conditions," it added.

The country's personal savings rate had fallen dramatically, from 2.4 percent of gross domestic product in 2002 to just 0.3 percent in 2007.

The idea is that if consumers saved more and spent less, then there would be less demand for imported goods.

That could in turn help to reduce a deficit on the balance of payments into and out of the country.

But even as the international trade body advised US consumers to save more, the White House's message in March was for US consumers to buy more.

"We do want to see the consumer spend, and that's one of the reasons for the rebate checks," spokesman Tony Fratto said then, referring to a key component of a stimulus package valued at $152 billion (E96.2 billion) for 2008 and $16 billion next year.

"The big message is that you can have confidence in the long-term future of our economy," Fratto told reporters amid growing fears that the world's wealthiest country may be facing a recession.

* * *

GATA is grateful for financial contributions, which
are federally tax-deductible in the United States.