Zero-sum thinking won't help US adjust to new financial order
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2010 has been a difficult year for Sino-US relations, but while tensions remain, there is great-er cause for optimism than a few months back.
Yuan valuation has been one of a number of issues that caused turbulence. It has the potential to constrain future bilateral cooperation if left unattended.
Luckily, Washington has a relatively small pool of particularly hawkish elements. More moderate opinion recognizes that US economic difficulties stem from internal structural factors rather than Chinese economic policy.
However, in the febrile atmosphere of Capitol Hill, political point-scoring often seems to take priority over national development. Instability in relations with China has no identifiable benefits for the US, and it is clear that deepening cooperation represents the most desirable course of action.
Since 2007, the yuan has appreciated between 20-30 percent against other major currencies, reflective of more realistic market opinion and a steady process of deregulation from the People's Bank of China (PBC), the central bank. It's clear that a free-floating yuan is in China's long-term interests. It would increase China's purchasing power abroad and unlock the massive potential of its financial service industries.
However, it's also undeniable that a sudden revaluation would do significant damage to China's economic recovery, and by extension the global recovery. A more rational approach, as again recently outlined by the PBC, is incremental reform as conditions dictate.
For its part, China must acknowledge that fuelling some of the high emotions in Washington is a more general sense that, with this and other such actions, Beijing is not playing fair in the international arena.
It is only possible to refute this view if it is evidenced by a healthy pace of reform, and China must continue to fulfill its international obligations.
The broader significance of the yuan issue, however, relates to the US role in global affairs, and the extent to which the "Washington Consensus" was not sustainable as a model of international relations.
