Why all the hoo-ha about China finally revaluing its currency? In Washington, inward-looking policy sycophants, including influential politicians from both sides of the House, hailed Beijing's monetary policy moves as not the right thing for China to do.

Instead, after years of threatening China with economic retaliation of sorts - none of which made any economic sense - the policy hawks hailed it as a victory. They claimed that China finally caved in because of relentless pressure by the United States.

But what else were US politicians to do? Their constituencies - made up of big business and powerful labour unions - pressed them to take corrective policy action. US politicians, like politicians anywhere, can suddenly - and conveniently - become nationalists when their own positions are threatened. They launched a whispered scare-mongering campaign, but one that was hyped up and pushed along by the labour movement.

Also included were those American businesses which suddenly discovered that competing against China's exploitative low-waged competitive advantage was grossly unfair. And especially in a world of a free-market-based free trade regime - one fiercely promoted ideologically by the Bush administration along Reagan-ite lines. Yet it never seems to count when the rest of the world accuses the US of unfair trade practices, like protection for inept American farmers.

No doubt US pressure had been mounting in recent months, especially as news that China's state-owned businesses were eyeballing large American multinationals for takeover. Take the China National Offshore Oil Company (CNOOC), which made a daring bid for US rival Unocal.

Chevron, the other US energy giant, also bid for Unocal, increasing its cash-and-share offer by about five percent to US$17 billion in mid-July. It was a move that enabled the US oil major to retain the backing of Unocal's board, and one that put CNOOC on the defensive. CNOOC has to raise another US$2 billion, at least, if Unocal's board is to jump ship.

That's just one of several bids by Chinese state-backed conglomerates seeking out American companies, and it has had US politicians on edge, apparently because they fear Chinese companies are muscling in on US global market dominance. Rubbish. All this American humbug doesn't even begin to tell the story of why Washington is suddenly jittery about the Chinese. Their jitters are founded at another level: China's growing geopolitical strength.

Next big 'threat'

China, with the world's largest population, a huge military and a white-hot economy (in which large and medium-sized American companies have been investing increasingly heavily for at least a decade), is on a direct trajectory to challenge the US for pre-eminence in East Asia. Perhaps even globally.

And every American right-wing policy research institution, including the influential American Entreprise Institute - which openly supports the neo-conservative administration of President George W Bush - sees China as America's next big foreign policy challenge (read threat).

So will the yuan's sudden revaluation sufficiently soothe American anxiety? Whether America's yawning trade deficit with China improves or not is left to be seen, but yes, American nerves will be calmed - but only until US politicians finish their summer holidays. When they return to Washington, they may well see what the yuan's revaluation means in the harsh light of day.

China's timing in unpegging the yuan comes just before its clueless president, Hu Jintao, travels to Washington next month on a trip that may or may not see US congressional criticism levelled at its exchange rate policy.

Usually dour premier Wen Jiabao, who in March had promised, mischievously, that any revaluation of the yuan would come as a surprise to the markets, would now be nervous, despite China's paid lobbyists working overtime in hustling American policy makers with Beijing's spin and spiel.

No surprise

It's not going to work. China's move to a flexible exchange rate had been in the works for so long that the revaluation, when announced, neither stunned nor fooled many China observers. It was so small - just 2.1 percent against the US dollar - that it barely caused a ripple in world currency markets.

More importantly, it's not going to alter the US trade deficit with China. The size and timing of the revaluation says everything about China trying to smooth American feathers than making a long-run strategic economic move.

Moreover, although the new mechanism allows the yuan to rise or fall up to 0.3 percent against the dollar each trading day, China's domestic currency market is still dominated by the People's Bank of China, the central bank, with other traders playing a hugely minor role.

In a zero-sum game world, who will pay the price of Beijing's exchange rate policy move? China. But it will be a very small one. Unemployment, already rising at a worrying pace, will worsen with cheaper imports. Chinese banks, many insolvent, are also likely to see their non-performing loans increase with a higher renminbi, especially among companies that rely on exports. But any social or political unrest by Chinese workers will be brutality quashed through the state's insidious valour.

After all, China labour cost is on average 10 times cheaper than that of the US. China will want to retain that so that it remains an increasingly important production base even if the renminbi rises by the highest of estimated margins.

It means Asian economies will continue to face the same level of economic competition of investment as they have for over the last 10 years.

Besides, Western and Asian multinationals will stay in China, hugely attracted by its sizeable domestic market, meaning the US trade deficit will not vanish with a higher renminbi. Nor will it do much to solve America's long-term structural unemployment problem.

Exaggerated claims

Asian governments needn't crow that their trade imbalance with China will now improve. It won't. Asian governments have long exaggerated such claims but the fact is that China's 'processing trade' - that's the trade in goods imported, processed then re-exported - is overblown.

Investment bank UBS calculates that China only accounts for 13 percent of Asia's current account surplus against the US. That's a paltry figure and it certainly doesn't underline Asian governments' massively false arguments. It only shows that the rest of Asia isn't anywhere near as competitive as China.

Still, the yuan farce could become a yuan fiasco of sorts in the near term. If the yuan doesn't appreciate by at least six percent against the greenback by year's end, count on the US putting even more pressure on Beijing to revalue the currency. But also bet on Asian governments to continue beating down real wages growth while using their policies of neglect and intimidation.

These countries could also well face political pressures from American politicians, who would be keen to re-link trade and investment with labour and human rights if it distracts focus from their own incompetence, if more American jobs are threatened.

With the US economy still a long way to reclaiming its glory days of the 1990s, and the big economies of Europe and Japan still in the doldrums, all will be looking for scapegoats far away from their own troubled shores. And Asia is clearly in their sights - again.

MANJIT BHATIA, an academician and writer, is also research director of AsiaRisk, a political, economic and risk analysis consultancy in Australia. He specialises in international economics and politics, with a focus on the Asia-Pacific.