[OUTLOOK]Get ready for a currency battleLast July, the Chinese government revalued the exchange rate of the yuan. Beijing has stepped away from pegging its currency to the U.S. dollar. Washington welcomed the move as a progressive step towards the alleviation of trade obstacles between the United States and China.
Nevertheless, the tension between the two countries is expected to continue for the time being, and the relationship between China and the United States is useful in examining the trade relationship between Korea and the United States.
The U.S. manufacturers and Congress have singled out Beijing’s currency exchange policy as the thing responsible for the trade deficit with China. Last year, the U.S. trade deficit with China reached $162 billion, and the figure is expected to grow by 32 percent this year.
As soon as Beijing gave up the fixed exchange rate of 8.3 yuan per 1 U.S. dollar, the exchange rate of the yuan against the dollar rose by 2 percent, but public opinion within the United States is still not friendly. American critics, including the National Association of Manufacturers, point out that the yuan is unreasonably undervalued. They argue that the Chinese currency is exchanged at 30 to 40 percent under its value. With one voice, they insist that Chinese exporters are unfairly profiting, and therefore the Chinese government must take additional measures to correct the problem. Reflecting public sentiment, Washington has been reinforcing related laws.
The U.S. trade deficit is very serious and is expected to reach $690 billion this year. Of course, the target of the trade deficit controversy is China. However, there is a point we should not ignore. Increasingly, U.S. policy-makers tend to see China’s problem as not limited to China but as an Asian problem in general. Therefore, Korean companies that export to the United States are unwittingly falling into a dangerous situation because of their Chinese counterparts.
The United States is watching Korea’s foreign exchange policy with a suspicious eye for two particular reasons. First, economists claim that Asian countries are worried about being outdone by China in the trade market and are protecting their currencies from rising faster than the yuan. Based on this analysis, a perception is spreading that the foreign exchange problem of China is in fact a problem for all Asia.
Secondly, it is not news that the United States pays attention to Korea’s currency policy. The U.S. Department of Treasury had classified Korea as a exchange rate manipulator in the late 1980s. Therefore, Washington has a bias against Korea.
Heavyweight U.S. industries, including the sluggish automobile industry, blame Asian currencies, including the Korean won, for their aggravating financial structures. They are pressuring Congress and the government to respond strongly to the currency policies of Asian nations.
As a result, a series of recent legislation targets not just China but also Korea and Japan. The most notable of these bills has been presented by Senator Joe Lieberman, who was the Democratic candidate for vice president in 2000. The bill names Korea as one of the countries whose foreign currency reserves have increased, and considers it a sign of government intervention aimed at exchange rate manipulation. Mr. Lieberman’s bill includes intensive trade sanction measures. According to the bill, Article 301 of the Trade Act would be applied to countries that harm U.S. manufacturers by manipulating their currencies.
Last July, the influential Congressman John D. Dingell of Michigan, U.S.A., introduced legislation that would have the U.S. Department of Commerce investigate the influence of currency manipulation on the job market for the manufacturing sector of the United States. Moreover, it urges the government to haul currency manipulators to the World Trade Organization.
Considering the circumstances, the Korean government and industries need to prepare for a possible currency dispute. We need to make it clear that Korea and China are different. Through the International Monetary Fund and other international organizations, the Korean government has to let the American leaders know that Korea does not manipulate its currency and that Korean companies are not making unfair profits. Furthermore, it would help if we proved through research that the growing trade deficit of the United States is due not to Asian currency manipulation but to other factors.
* The writer is a managing partner at Akin Gump Strauss Hauer & Feld LLP in Washington D.C. Translation by the JoongAng Daily staff.
by Kim Suk-han