The yuan/dollar exchange rate and America's trade deficit with China

ON OCTOBER 11th the Senate is due to vote on a bill that would lead to sanctions being taken against countries whose currencies are "misaligned". One currency in particular—the yuan—is on the minds of legislators. But as the chart below suggests, the recent relationship between China's currency and America's trade deficit with China is not what China hawks in the Senate think it is. Rather than a cheap yuan leading to a flood of Chinese imports, the yuan has actually strengthened as the deficit has widened. There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on. However the place for fixing these things is the World Trade Organisation, not Congress. President Obama's administration has already passed on two opportunities to label China a currency manipulator, out of a well-founded fear of sparking a trade war. Senators should do the same (while hoping that China responds to their sabre-rattling by letting the yuan rise a little more, as happened the last time the Senate came close to passing a similar measure, in 2005).