November 20, 2009 / 6:32 AM / 10 years ago

Escalation of US-China trade row biggest global threat-M.Stanley

SINGAPORE, Nov 20 (Reuters) - A serious escalation in trade or currency disputes between the United States and China could be the biggest risk to global stability over the next few years, a top Morgan Stanley executive said on Friday.

If a “bi-partisan anti-China currency bill” being planned by both Republican and Democrats is passed and signed into law by President Barack Obama, China could retaliate, Morgan Stanley (MS.N) Asia chairman Stephen Roach told an American Chamber of Commerce session in Singapore.

“I worry that next year,... if President Obama would allow that bill to go through, then the Chinese will not show up at the Treasury auctions and we will be back in the soup again,” Roach said.

China has amassed $2.27 trillion of foreign exchange reserves, the world’s largest stockpile, and analysts think about two-thirds of this is invested in dollar-denominated assets. China has a huge trade surplus with the United States, and is the largest foreign holder of U.S. government bonds.

South Carolina Republican Lindsey Graham and Democrat Senator Charles Schumer asked the Commerce Department on Thursday to investigate alleged Chinese currency “manipulation” and if so, impose tariffs on Chinese imports. [ID: N19471538]

The two lawmakers have attempted to pass punitive tariff legislation against China in recent years to pressure it into floating its currency, and Schumer threatened on Thursday to revive the effort.

Roach said Obama was likely to face strong political pressure to pass such a currency bill as the United States was facing a 10.2 percent unemloyment rate, twice as high as the period from 2005 to 2007, when 45 “anti-Chinese” bills were introduced in the U.S. Congress, although none of them was passed.

During a visit to China this week, Obama pressed complaints that Beijing is keeping the value of the yuan currency CNY=CFXS too low, hurting U.S. businesses and exports.

However, Chinese President Hu Jintao ignored the issue in comments to the media, instead dwelling on trade protectionism which Beijing China says unfairly threatens access to U.S. and other markets.

The U.S. trade deficit with China widened 9.2 percent in September to $22.1 billion, the highest since November 2008, according to U.S. data released last week. (For more stories on currency and economic tensions between the United States and China, click on [US-CN-TRD-DIP-RTRS-LEN]) (Reporting by Nopporn Wong-Anan; Editing by Kim Coghill)

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