Page last updated at 10:36 GMT, Saturday, 24 April 2010 11:36 UK

US politicians playing "silly little games" on China

By Martin Webber
BBC World Service business editor

Stacks of 100 yuan notes
The US has said China keeps the yuan artificially low, hurting the US economy

One of the world's most influential economists is getting increasingly exasperated by what he calls "silly little games" being played by those American politicians who attack China for causing job losses in the United States.

The economist, Jim O'Neill, comes from Goldman Sachs - itself a firm under attack from regulators and politicians.

But the fight over practices on Wall Street is not what lies behind Mr O'Neill's strongly worded dismissal of concerns about China's trade policies. Instead, he says critics of China are simply using out of date analysis.

China import boom

Jim O'Neill has always been an optimist about the prospects for the leading emerging economies. He coined the popular term BRIC to describe the rapid expansion of Brazil, Russia, India and China long before most people expected them to deliver such economic dynamism.

The whole issue of the exchange rate is being completely overblown
Jim O'Neill, Goldman Sachs

Now, in an interview for the BBC World Service, Mr O'Neill has said he suspects that, "behind the scenes", there has been a "nod and a wink" from the Chinese president that "an exchange rate move is coming".

But, even more importantly, he says China's underlying trade surplus has dropped "dramatically", with a "massive" rise in Chinese imports in recent months. Mr O'Neill states that China is no longer dependent on exports to the west.

As examples, he points to a boom in imports into China of BMW and Mercedes cars, advanced machinery and luxury consumer goods.

He makes a startling prediction: "German trade with China is rising so sharply that it is possible that, by this time next year, German trade with China will be bigger than German trade with France."

He continues: "The whole issue of the exchange rate is being completely overblown in terms of its importance. This thing in Washington is really Congress, not the White House and Treasury, luckily, playing silly little games that are really tiring. They were doing this 30 years ago with Japan. It's kind of ridiculous."

We've tried talk, we've tried persuasion, it's time for action.
Alan Tonelson, United States Business and Industry Council

There are indeed signs that tension could be easing. Earlier this month, China actually recorded a monthly trade deficit, while the US Treasury Secretary, Timothy Geithner, postponed a report that could have branded China a "currency manipulator."

However, American manufacturers remain angry that China has refused to let its currency value float upwards, which would make Chinese goods more expensive in world markets and so give other nations more of a chance to compete.

Calls for tariffs

Alan Tonelson, of the United States Business and Industry Council, which represents 1,500 small and medium sized US businesses, says he prefers to look at the past decade of China's recurring giant trade surpluses, not - what he calls - the "temporary blip" of China's recent import boom.

Mr Tonelson says that American policy makers are getting it wrong by not focussing enough on China's currency policy, as well as on "China's manifold other trade barriers and other predatory practices", which he argues have "been at the expense of jobs, growth and production all over the world".

Factory at sunset
China is now the world's biggest exporter

Mr Tonelson insists: "What urgently needs to be done for the sake of the whole global economy… is to impose an immediate 40% to 50% tariff on Chinese goods coming into the US. Nothing else will work. We've tried talk, we've tried persuasion, it's time for action."

World Economic Imbalances

Similar views are strongly held elsewhere, with Bill Hickey, president of Lapham-Hickey Steel group arguing that currency "manipulation" by China in the last decade has meant a loss of 33 per cent of America's manufacturing jobs.

Mr Hickey blames China for the 2008 financial crisis, arguing that the low interest rates that led to the housing boom and bust were China's fault.

He says: "This is one of the major imbalances in the world economy. If the problem had been dealt with in 2003, we wouldn't have had the low interest rates that Mr Greenspan used to get our economy, that was imploding because the manufacturing sector was being destroyed by China, going again."

Mr Hickey's view is poles apart from Jim O'Neill at Goldman Sachs. Which side President Obama sides with in the coming weeks will be of immense importance to the whole world.

Trade tension between the US and Japan did eventually evaporate 20 years ago. But a much worse precedent was the 1930s, when nations couldn't settle their differences and attacked each other with tariffs, causing a slump in world trade and the Great Depression.

To listen to the interviews, click here to hear the BBC World Service World Business News podcast:

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