Center

Penalizing China to hurt US

(Agencies)
Updated: 2007-06-15 10:26

Analysts say China is a key buyer of US Treasury bonds, and that any hint of a move away from this could push up US interest rates by forcing Washington to pay higher yields to attract investment.

Analysts said the latest bill appears to have strong bipartisan support.

"We have a very large trade deficit with China, and when (lawmakers') constituents are feeling economic woes, it's a good way to blame it on someone else," said Jay Bryson, global economist at Wachovia Securities.

But Bryson said it is misguided to blame China for problems in the US balance of payments.

"We should blame ourselves," he said. "We have a large current account deficit because we don't save enough. We spend more than we produce. If China disappeared tomorrow that deficit won't go away, we'll buy those goods from Mexico or Pakistan or whomever."

Bryson said the relationship between the US and China benefits both: "We need China because they help keep costs and interest rates down but at the same time China needs us. If we don't buy as many goods it will cause their economy to slow."

Some analysts say the latest moves may be part of maneuvers in Congress and the US administration to ramp up pressure that may force the Chinese to back down.

"I don't think anyone in forex land takes this bill seriously and most believe that the Chinese would allow the currency to accelerate in advance of sanctions," said Andrew Busch at BMO Capital Markets.