by Yoo Seungki
SEOUL, Oct. 14 (Xinhua) -- U.S. Congress passed the free trade agreement (FTA) with South Korea on Wednesday, adopting a liberalistic trade policy to expand export to the Asia's No.4 economy.
A day earlier, another bill, known as the Currency Exchange Rate Oversight Reform Act of 2011, was approved at the U.S. Senate, heralding the world's largest economy's protectionist approach to its sluggish economy and high unemployment.
The currency bill, which threatens to punish China for so- called "currency manipulation" with retaliatory tariffs, was in the opposite side of the free trade deal that aims to abolish almost all of the tariff and non-tariff barriers over the next five years.
Experts cited political and economic conditions in the U.S. as the reason for the contradictory coexistence of liberalistic and protectionist approaches. "The bills are about politics as well as about economics. They are also related with the size of trade deficit," Jeong Young-sik, a senior research fellow at Samsung Economic Research Institute (SERI), told Xinhua on Friday.
Jeong said the U.S. needed to persuade voters into believing that economic slowdown and high unemployment stemmed from external factors such as the trade imbalance with China, as well as internal factors, including failure of economic policies, because the nation was scheduled to hold a presidential election in November next year.
He also noted that the U.S. fired an aimed shot at China, which had more trade surplus with it than South Korea due to the size of the economy, as exports became more important than ever, with little room for additional stimulus policies left.
As for the U.S., export became a major tool that may boost its sluggish economy and create jobs as Washington exhausted almost all policy options both fiscal and monetary after experiencing the deadly 2008 global financial crisis. The U.S. government's goal of doubling exports by the end of 2014 was believed to push the Congress to approve the free trade deal at a fast pace.
The implementing bill on the free trade deal was passed by a vote of 83-15 at the Senate on Wednesday. Hours earlier, the Republican-led House approved the bill in a 278-151 vote nine days after U.S. President Barack Obama sent the bill to the Capitol Hill on Oct. 3.
"Tonight's vote, with bipartisan support, will significantly boost exports that bear the proud label 'Made in America', support tens of thousands of good-paying American jobs and protect labor rights, the environment and intellectual property," Obama said in a statement.
The deal with South Korea was estimated to increase U.S. exports by as much as 11 billion U.S. dollars a year, while creating around 70,000 new jobs when in full effect. The bilateral deal was also estimated to boost South Korea's gross domestic product (GDP) by 5.66 percent.
Opponents, however, said the trade deal was not in favor of South Korea, warning the expected economic boost may not happen. The free trade deal was originally reached in 2007, but Seoul and Washington renegotiated the deal from late 2010 as the U.S. asked for new terms for auto trade.
South Korea's ruling Grand National Party hailed the passage of the trade deal in the U.S., but opposition parties expressed hostility toward the deal, insisting on additional negotiation on the agreement to better protect domestic industries.
The U.S. opted for a misguided approach to China by trying to impose punitive tariffs on imports from China, which were feared to trigger a trade war between the world's two leading economies and in consequence endanger global economic recovery.
"The currency bill could trigger a trade war between the two countries. The U.S. protectionism and the trade friction between the two nations may lower the global economic growth rate," Daniel Yoo, a strategist at Woori Investment & Securities in Beijing, said by phone.
Statistics showed that the Chinese Renminbi, or yuan, has appreciated more than 30 percent against the U.S. dollar since 2005 when a dollar peg was scrapped. Over the same period, the U.S. jobless rate has risen from 7 percent to 9 percent, while more than 6 million Americans lost jobs, indicating that the yuan's value has little to do with the U.S. unemployment.
The People's Bank of China (PBOC) said in a statement that China would continue its reform of the exchange rate formation mechanism and increase the flexibility of the yuan exchange rate. "The PBOC will sustain its yuan appreciation trend down the road even though the appreciating pace may not meet the the U.S. expectation," said Yoo.
The controversial currency bill was regarded as largely political as the U.S. intended to divert voters' anger over high unemployment toward external factors such as trade imbalance with China from internal factors, including failure of economic policies, ahead of the presidential election in late 2012.
For the Capital Hill, the currency bill reflected division between the Democratic-led Senate and the Republican-controlled House. House Speaker John Boehner said on Wednesday that the currency bill would lead to unintended consequences, warning the bill posed a "very severe risk" of a trade war.