A leading China expert in the United States sees 'a very real danger' that Washington's and Beijing's simmering trade dispute could escalate into a trade war that could cut China's growth in half, transform Europe into a protectionist fortress and seriously set back US President George W. Bush's anti-terror campaign.
The scenario might be enough to ground the global economy, says Wing Thye Woo, an economics professor at the University of California in Davis who has served as a consultant to the Chinese Ministry of Finance and the US Treasury.
With the US trade deficit widening to a record US$68.5 billion in January and that with China growing 9.9 per cent from December to a monthly record of US$17.9 billion, it is no wonder that US lawmakers and producers have accused China of 'manipulating its currency'.
In retaliation, senators Lindsey Graham and Charles Schumer have sponsored legislation that would impose tariffs of 27.5 per cent on all Chinese imports unless the yuan is revalued significantly.
Last year, the US deficit with China soared 25 per cent to almost US$202 billion. Since then, lawmakers and administration officials have grown increasingly vocal about punitive trade measures against China.
Professor Woo forecast that 'if protectionism rears its head, the growth rate in China could easily fall to 5 per cent', a setback that might deal a heavy blow to continuing reforms and undermine the legitimacy of the Communist Party.
