China may have won only a short breathing space in its testy trade relations with the US after enacting a small but highly symbolic revaluation of its currency.
The yuan's move from a fixed peg against the US dollar to a "managed float" against a basket of unspecified currencies carries more political than economic weight, analysts said.
In itself, experts argue, it is unlikely to make a serious dent in the yawning US trade deficit with China, which in May hit nearly US$16 billion. And US pressure on other trade fronts has not disappeared.
Gary Hufbauer, senior fellow at the Institute for International Economics, noted that Congress will shortly break for its August recess and then will be consumed by hearings for a new Supreme Court judge, among other domestic issues.
"There's only a certain capacity for Washington to focus on [more than] one thing at a time. But I would be surprised if the China issue does not resurface later in the fall," he said.
"Other trade issues haven't gone away: We still have intellectual property rights [IPR] and textile imports. And most congressmen say this wasn't enough on the currency front, anyway," Hufbauer said.
China announced on Thursday that the yuan was being revalued at 8.11 to the dollar, compared with 8.28, a 2.1 percent revaluation.
The currency will be allowed to trade 0.3 percent either side of a daily fixed rate, and fluctuate in a managed float against a basket of trade-weighted currencies.
While welcoming the revaluation, Treasury Secretary John Snow said the United States would "monitor" China's new currency system.
US Manufacturers Alliance President Thomas Duesterberg said the yuan's "true value" is another 25 percent to 40 percent higher against the dollar.
"The appreciation of the yuan is a significant first step in addressing China's global trade imbalance, but it is so small that it will have little impact on the trade deficit with the United States," he said.
Economists are in no doubt that China will loosen the peg further in due course. Morgan Stanley chief economist Stephen Roach said the revaluation was "unambiguously positive" for the global economy.
He said it was good for China, as by moderately curbing export growth, it provides "the cushion to engineer a soft landing in the Chinese economy."
"It derails Washington's protectionists and the serious threat they posed to geopolitical stability," Roach added.
Such "protectionists" would include New York Democratic Senator Charles Schumer, who last month shelved a bill to slap heavy tariffs on Chinese imports.
RSS