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Perils of clashes with China over currency and rare-earth exports

Using trade as a tool for market advantage or as a substitute for war has its limits. China went too far in cutting exports of rare-earth minerals to Japan. Will the US go too far in punishing China on currency manipulation?

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Is the world heading into a dangerous storm of trade reprisals and economic sanctions?

Individually, such actions often seem worthy. The US House, for instance, passed a bill today that would make it easier for the Commerce Department to penalize China for manipulating its currency rate – an unfair way to favor Chinese exporters.

But Beijing appeared to anticipate that move this week by slapping high tariffs on imports of American poultry.

Two weeks ago, Japan helped its ailing exporters by intervening in currency markets – for the first time in six years – to devalue the yen. Many Latin American and Asian nations have also artificially altered their currency rates to create export-related jobs.

But taken together, such actions amount to a global “currency war,” warns Brazilian Finance Minister Guido Mantega. Too many nations are competing with devaluations to create a trade advantage but causing damage to the market-based system of world trade.

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