US-China trade row poses big risk

Singapore: 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 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 (Dh8.34 trillion) in foreign exchange reserves, the world's largest stockpile, and analysts think about two-thirds of this is invested in dollar-denominated assets. China is the largest foreign holder of US 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.

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 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 per cent unemployment rate, twice as high as the period from 2005 to 2007, when 45 "anti-Chinese" bills were introduced in the US Congress, although none of them was passed.