A trade war with China will do nobody any good, least of all American workers and consumers.
Congress wants to fire a salvo in that war by passing legislation that would punish China with trade tariffs. The levies would push up the price of the relatively cheaper goods China exports that fill shelves in U.S. department stores and malls.
American lawmakers, with an eye on November elections, want to push China to let its currency float freely against the dollar and stop promoting Chinese exports by what they say is deliberately keeping its currency, the yuan, cheaper than the dollar.
Voters may think that talking tough with China is a good idea, but many experts say be careful what you wish for.
Supporters of the bill argue it would save U.S. jobs against unfair trade competition. Critics say trade sanctions won’t do much to help American workers or consumers.
“It’s a double-edged sword,” James Thompson, the American-born chairman of Crown Worldwide Holdings, a global shipping company based in Hong Kong, told a group of American reporters on a recent trip to China. “It will shift jobs to Mexico and Brazil – not the U.S. And from the (American) consumers’ perspective, it will put higher prices on the products they buy in the U.S.”
A rising yuan could put pressure on companies making products in China to look for places to make those goods more cheaply. But if low-cost manufacturing is your objective, there are a lot of other low-wage countries to consider before setting up shop in the U.S.
Low-cost Chinese goods have also been a boon to American consumers and helped to contain inflation in the U.S. That trend could reverse if China lets the yuan's value rise more quickly.
Supporters of a “get tough” trade policy are also hoping that a higher-valued yuan would make U.S. exports more competitive relative to Chinese companies. But U.S. manufacturers would still have to compete with other highly developed countries like Germany and Japan. The prices of those goods wouldn’t be affected by a free-floating yuan.