U.S. not yet in trade war with China: strategist

NEW YORK (Reuters) - The United States is not yet marching into a trade war with China over its exchange rate, and thankfully so since doing so would likely hurt the U.S. economy more than China's, said Mike Moran, currency strategist with Standard Chartered, on Wednesday.

Four U.S. senators unveiled a bill on Wednesday that would give the Treasury Department new tools to push Beijing to freeing up its currency, hours after Treasury did not identify China as a "currency manipulator" in a semiannual currency report.

"We don't think there is going to be a significant deterioration to the extent where we will see a full-fledged trade war," Moran said at the Reuters Investment Outlook Summit in New York.

"Inevitably, we will see more of these frictions. I don't think it will be strong enough to guide China on to a different path," he said.

Last month China's central bank widened the band in which the yuan is allowed to trade against the dollar to 0.5 percent from 0.3 percent, ahead of strategic economic policy talks with Washington.

However, some U.S. policy-makers who argue the yuan is undervalued by as much as 40 percent said the baby step toward flexibility was not enough.

The U.S. trade gap with China is roughly a third of the country's overall trade deficit, which last year hit a record $758.5 billion.

China revalued the yuan in July 2005, but after one Treasury secretary change, one exchange rate band widening, and countless soundbites from U.S. congressmen, the yuan has only appreciated about 6 percent against the dollar.

Moran said Beijing is carefully trying to contain inflation pressures and slowly open its capital account, while gradually allowing the yuan to trade freely.

"With something like the renminbi, I think you will see greater volatility in terms of the daily fix," he said.

To the dismay of U.S. lawmakers, China is not in a rush to unleash the yuan, and protectionist legislation will not have the intended effect of getting the world's fourth largest economy to speed up reforms, Moran added.

And this could be a blessing in disguise for the U.S. economy, particularly because of the American consumer's appetite for exports from China.

"At the end of the day, if we had a full trade war, tariffs being raised against China and the United States, who is worse off economically? The cost is far greater on the U.S. and the U.S. consumer," Moran said.