Written by Laurence Brahm - Published by South China Morning Post on 09/29/2003

A few short weeks after US Treasury Secretary John Snow failed to persuade China’s leadership to revalue the yuan, both sides are talking tough.

At annual Imitational Monetary Fund and Wor1d Bank meetings in Dubai during the weekend f September 20-21, Mr Snow said: "We’re not singling anybody out," fingering China with pointed irony. The fundamentalism of the Bush administration may be extending from politics and religion into international monetary policy.

China’s State Administration of Foreign Exchange (Safe) retorted the same day, “exchange rates are not to be turned into political issues o r an excuse for trade protectionism”.

In Dubai, G7 finance ministers issued a broadly worded statement: “More flexibility in exchange rates is desirable ... to promote smooth and widespread adjustments in the financial system based on market mechanisms” - which could be read as a compromise. Mr Snow proclaimed it a “milestone change in the way the G7 looks at the world”. He was contradicted, however, by the British treasury, which said the statement did not represent any greater G7 recognition of more flexible exchange-rate principles.

Safe responded unequivocally with a three-point policy of maintaining yuan stability; recognising that “China is a developing nation requiring stable internal and external financial conditions”; and “China's stable development is positive for the economies of both Asia and the world”.

It seems that China currency-bashing could become presidential campaign fodder for US President George W. Bush. This month, M r Bush launched his first broadside in an Ohio speech, saying “some Asian countries” were maintaining unfair exchange rates. Congressmen demanded an investigation into how China conducts exchange-rate policy, and Federal Reserve chairman A1an Greenspan called for a free-floating yuan..

What is really going on? China’s policy makers were asking the same question when Mr Snow left Beijing. Foremost on their minds was concern over what the White House might do next.

China’s policymakers remember al1 too clearly how in 1985 the administration of Ronald Reagan bullied Japan into revaluing the yen through a combination of import tariffs and threats of action under Section 301 of the US Trade Act. The probability of similar moves being repeated by the Bush administration is all too predictable.

Today, the entire structure of China’s trade surplus with America differs from that of Japan's […] and Mitsubishi were competing fiercely on American turf.

But China does not realistically have any international brands that can threaten American ones, especially in the US market. China’s exports are textiles, cheap plastics, toys - the things Japan produced in the 1960s, items no longer manufactured in America.

If China was not producing these, they would be produced by other nations in Southeast Asia, South or Central America, but certainly not in the US. So China’s industry is not, in fact, threatening American jobs.

Sources in Beijing note that when Premier Wen Jiabao tried to explain this point, Mr Snow commented that American manufacturers and voters “do not understand and do not care to know”. The Bush administration has 1earned that you can tell them anything.

Americans were convinced that invading Iraq was revenge for September 11, even when the perpetrators were mostly Saudis. So why should the yuan issue be any different for Mr Bush? Just tell the American public they are losing jobs because of a strong yuan, and then pressure China into widening the trading ban. Voters in middle America believe what you tell them.

With elections on the horizon, the White House is groping for new “bad guys”. September 11 temporarily removed China from Mr Bush's list of enemies.

But with Afghanistan and Iraq becoming new and expensive Vietnams, Mr Bush needs a new victory, and with 2.4 million jobless workers in American manufacturing sectors, he needs their vote more than ever. Pointing fingers at distant and abstract enemies is his proven formula. In an election year, “reds under the beds” should fit his administration’s spin-doctor rhetoric nicely.

Laurence Brahm is a global activist, international mediator, political columnist and author. He is the leading advocate of a fresh development paradigm - The Himalayan Consensus - an innovative approach to development.

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