Currency War

The U.S. pressure on China to revalue its currency have repeatedly failed at doing anything positive about Chinese currency manipulation.The yuan has gained 0.8% in the last week,since a two- year peg ended in June to a little more than 1%,though not a sign of greater flexibility in its exchange rate.An undervalued yuan makes it difficult for shaky U.S. & European countries.If China revalue the yuan,it would be a catastrophe for its booming economy.The same thing happened in 1985,the Plaza Accord,where Japan agreed to let its yen currency appreciate against the dollar,which was a catastrophe for Japan.A bad decision for which Japan is still paying the price.The U.S. trade deficit with China reached $119 billion in the first half of the 2010,which is going to exceed last year's total $227 billion to $235 billion or even more than $235 billion. Meanwhile,Japan started to make situation more complex by sudden intervention of its currency.The Japanese Prime Minister Mr Naoto Kan ,in some extent,wants to spoil the U.S-China currency diplomacy.Now China ,certainly going to ask,why don't you ask Tokyo first? Of course,yen isn't representing global imbalances the way the yuan does.In next few months,policy makers from Seol,Taipei,Malaysia,Thailand may step into limit volatility in their currencies,thanks to Mr kan's short term thinking. So,what are the solution for this complex situation?In my opinion,the U.S. should impose a strict tariff that offset the subsidy.Of course,by doing so,china will retaliate by dumping the U.S. holding and will stop buying U.S. bonds anymore,as a result,the dollar would fall.But in long term,U.S. will benefit because this will make the export more competitive.