China, U.S. Are on ‘Collision Course,’ Roubini Says (Update1)
By Bloomberg News
March 25 (Bloomberg) -- The U.S. and China are on a “collision course” over the value of the Chinese currency and investors are underestimating the disruptions for global financial markets, according to Nouriel Roubini.
“The risk of a collision course on China’s currency peg and a wider trade rift between the world’s largest debtor and creditor nations has risen significantly in recent months,” Roubini, a professor at New York University, wrote in a note to clients. “Markets do not seem to be pricing in the potential consequences of the U.S. labeling China a currency manipulator, which could be significant even if both sides avoid taking immediate bilateral actions.”
There is a 50 percent chance that the U.S. government will label China a currency manipulator, said Roubini, who issued his comments after attending a private meeting for Western delegates with Premier Wen Jiabao at the annual China Development Forum.
Labeling China a currency manipulator would make it easier for companies to seek import duties, U.S. Senator Charles Schumer said this week. China will balk at allowing the yuan to appreciate if that happens, Donald Straszheim, director of China research at International Strategy & Investment Group, said yesterday.
China’s Shanghai Composite Index fell the most in two weeks today, led by shipping companies, on concern rising trade tensions will hamper the recovery for exports. Yuan forwards declined after China reiterated it won’t yield to foreign calls for currency appreciation to resume.
“The Chinese government will not succumb to foreign pressure to adjust our exchange rate,” Vice Minister Zhong Shan told reporters during a trip to Washington to meet with U.S. officials and lawmakers. “To force the appreciation of the renminbi will be counterproductive.”
The Treasury Department is “seriously considering” labeling China a currency manipulator in an April 15 report, Schumer said March 23.
China has kept the yuan at 6.83 per dollar since mid-2008 to shield exporters from the global recession and a contraction in world trade.
The nation may post its first trade deficit in six years this month, a shift that may reinforce the government’s reluctance to end the yuan’s peg to the dollar, Standard Chartered Bank Plc said this week. China’s exports surged 46 percent last month.
China will limit the yuan’s appreciation to 4 percent over the next 12 months because of a “super cautious” outlook on the global economy, Roubini said in a March 8 interview.
Roubini, who runs his own global economic strategy firm, correctly predicted a “hard landing” for the world economy in 2007 and has become famous for his pessimistic projections.