Nobel laureate urges China not to retaliate EU, US moves on textile trade restrictions

Nobel laureate Robert Mundell, father of Euro and an advocate of a stable Chinese currency, urged China not to retaliate against Europe and the United States' restriction imports of some Chinese textile goods.

Addressing a group of experts with the Development Research Center of the State Council, China's cabinet, late Tuesday, Mundell said the best policy for China is to express disappointment and maybe concerns about the (US and European) policy, which he described as offensive to the rule of the World Trade Organization (WTO).

"It doesn't fit into the WTO rule, and it's illegal. They are doing a bad thing," said Mundell.

He said the recent restrictions is going to require a big adjustment in China, and it would have negative impact on employment in some areas in China.

About 19 million Chinese people, mostly migrant workers from poor areas, are employed in China's labor-intensive textile sector with their per-capita monthly income ranging from as low as 500 yuan (about 65 US dollars) in inland China to a little more than 1,000 yuan (about 130 US dollars) in coastal areas.

Experts cautioned that the Western restrictions will deal a heavy blow to lives of some of those low-income Chinese textile workers and their families because of the restrictions.

He said the best response from China is similar to its handling of the exchange rate issue: "do nothing, don't retaliate."

"I don't think it's a good idea to start a trade war over this issue," he said. "In the long run, the forces that support China on this year, support free trade, dislike this movement back to protectionism would be stronger if China takes a very delicate and light hand on it, not a retaliatory hand."

He said China's exports of textile goods to the United States have surged enormously. It is a kind of recovery from decade-long restrictions on Chinese textile exports through the quota system, which was eliminated at the end of last year.

"If you look carefully at this (issue), what you see is that, going back to 1994, when trade quotas were put on, the basic idea at that time was that China has too great competitiveness in textile market. The quotas were put on for 10 years to give time to (other) countries to adjust", Mundell added.

On the issue of Chinese currency exchange rate, he said it would be "extremely damaging for China to change its fundamental policy" on its exchange rate. "China should keep its current policy forever -- as long as the (US) dollar remains stable."

By saying "forever," he said he was talking about 5 to 10 years.

Because of the improvement of productivity, it is easy for the real exchange rate of the Chinese currency to appreciate to the rest of the world, including the dollar, he said.

But the best way to achieve the exchange rate appreciation is not through appreciation as urged by some Western countries, but through a change of wage rates.

If the dollar becomes unstable, as it had in the past 200 years four periods of instability, then China would have to put an end to its policy of pegging its currency to the US dollar, he said.

Source: Xinhua