Imposing US trade sanctions on China for the alleged "currency manipulation" would be "a colossal policy blunder" and do little to gain jobs in the United States, a free-market research institute said.

Chinese customer shows off a handfull of hundred-yuan notes at a bank in Beijing. Imposing US trade sanctions on China for currency manipulation would be "a colossal policy blunder" and do little to gain jobs in the United States, a free-market research institute said. [AFP]

A report by the libertarian Cato Institute challenged the notion that imports from China were a major cause of US job losses and disputed claims by many in the US Congress that Beijing was using currency manipulation to gain an unfair trade advantage.

"A closer look at China's exchange rate and its impact on trade shows that the fixed exchange rate has not given an unfair advantage to imports from China nor hindered the ability of American exporters to sell in China's own growing market," Cato trade policy director Daniel Griswold wrote.

"Nor have the exchange rate and trade with China caused a contraction of America's overall manufacturing base. In fact, our booming trade with China has been a blessing for tens of millions of American families and a profitable opportunity for thousands of American companies and their employees."

Debate has been raging in the United States in recent years on whether China has used its fixed exchange rate to gain an unfair trade advantage.

A US government report in May stopped short of labeling Beijing a currency manipulator -- which could have triggered sanctions -- but accused China for making "far too little progress" in reforming its exchange rate.

Some US lawmakers have said they would press for stiff tariffs on Chinese-made goods if there is no progress on trade and exchange rates.

But Griswold said the surge in imports from China has had a relatively small impact on US producers because they have taken the place of imports from other countries and regions including Japan, South Korea, Singapore, and Malaysia.

"Real output of US factories has actually increased by 50 percent since China fixed its currency in 1994," he wrote.

"Rising imports from China have not so much replaced domestic production in the United States as they have imports that used to come from other lower-wage countries."

He added, "Critics overlook the huge benefits to Americans from trade with China. Most of what we import from China fits in the category of consumer goods that improve the lives of millions of Americans every day at home and in the office. China is now a major market for US companies and an important source of capital for the US economy."