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Take a deep breath. Do you smell that? That, my friends, is the smell of US Treasury Secretary Timothy Geithner getting grilled by the Senate Banking Committee. Yesterday, Geithner had the unenviable task of answering to senators who have been pushing the Obama administration to accuse China of currency manipulation.

Although Geithner did admit that he believes China is artificially weakening the yuan, he stopped short of labeling the economic giant a “manipulator.” Bah! Potato, potahto, I say! But really, who can blame him for not calling out China? After all, they have had a history of retaliation. If the US chooses to name-call and point fingers at China, they might just strike back by cutting demand for US exports. And that, I’m sure, is something the US would like to avoid.confucius.png

If this scenario sounds familiar, it’s because we’ve heard this before. Earlier this year, the yuan’s artificially-low value was a big issue in the US. Since then, China has allowed its currency to appreciate, although at a pace “too slow and too limited” according to Geithner.

Despite China’s newfound “leniency” towards the yuan, another growing problem now is that all the suits in US Congress are getting more and more riled up. They aren’t satisfied with how China has handled the value of the yuan and say that Geithner isn’t taking as strong a stance as he should towards China.

As a sign that they mean business, US officials filed a couple of complaints against China with the World Trade Organization, saying that the low value of the yuan puts American companies at a disadvantage.

More and more, the issue of the yuan is becoming a trending topic on Twitter feeds in Congress. Lawmakers are busting their butts trying to form a bill that would allow the US to impose taxes and penalties on currency manipulators (ahem, China). With election season just around the corner and with politicians wanting to win the hearts of voters, it’s no surprise that these politicians are focusing on China. Many are pointing to China’s unfair trade advantage (by virtue of its currency) as one of the reasons why the US economy is struggling.

In fairness to Chinese officials, over the past two weeks, the yuan has clocked in nearly a 1.5% gain against the dollar to close Shanghai’s trading session at 6.7248. While it doesn’t seem impressive on paper, the gain is actually pretty… well, awesome. This has put the yuan at its highest level since it started trading 15 years ago. If the yuan, a currency whose value is pegged against the dollar, can rally, then I don’t see any reason for other major currencies to NOT post gains as well.

Is this a sign that the yuan has nowhere to go but up? Hah, hardly. Besides, Chinese policymakers have made it crystal clear that they will not let the yuan appreciate solely on speculation as it could undermine China’s booming economy. If China were to let the yuan appreciate too quickly, it might lead to a sudden surge of capital inflow that could put the economy in a tailspin. Furthermore, they don’t believe that it’s the value of the yuan that is causing high unemployment or huge trade deficits in the US.

In any case, these two big boys better learn how to get along with each other. As I’ve said time and again, the only way for everyone to get out of this mess is if we all work together.