BERLIN—Europe's largest exporter kept up pressure on China to more fairly align its currency with those of its trading partners, warning that a trade war could result from countries competing to aid exports by holding down their currencies.
German Economy Minister Rainer Brüderle said it is up to China to prevent a damaging trade dispute with the U.S. "We have to take care that the currency war doesn't become a trade war," Mr. Brüderle told the Wednesday edition of Handelsblatt daily. The ministry later confirmed the comments. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."
Mr. Brüderle, who is currently in China, will represent Germany at next week's meeting of ministers and central bank governors from the Group of 20 industrial and developing nations in South Korea. That meeting will be the next venue for policy makers to address perceived currency imbalances that distort trade.
Last weekend's meeting of the International Monetary Fund in Washington became a forum for complaints about so-called competitive currency depreciation, without a consensus on how to act against it. China, for one, has declined to alter monetary policy.
Beijing has been singled out. But recent monetary steps by Japan, Brazil, Thailand, Australia and others also could have the effect of bringing down their currency values.
Germany and other European Union countries have followed in the footsteps of the U.S. in protesting that China is cultivating an unfair trade advantage by refusing to allow its currency values to drift higher, which would make Chinese goods more expensive.
Europe's economic recovery has depended largely on export trade to big emerging markets such as China. As the euro soars to new highs against the dollar and currencies of other trading partners, making European goods more expensive, that source of growth could dry out.
Mr. Brüderle declined to be drawn on what countermeasures could be taken to offset China's policy of keeping the yuan's exchange rate low, which some western governments—above all the U.S.—say give the country's exports an unfair competitive advantage. He warned that punitive import duties, which U.S. lawmakers are currently considering, would "only lead to retaliation. We can all only lose through protectionist measures."
Mr. Brüderle's unease comes after Germany's top central banker said Tuesday that China manipulates its currency. Some critics say the yuan is 40% undervalued. "China has a current-account surplus because its authorities manipulate their currency," said Axel Weber, Bundesbank president and ECB Governing Council member, in a question-and-answer session after a speech in New York.
For years, Europe has called for a more flexible Chinese exchange-rate regime, because the strength of the euro, which has recently hit an eight-month high against the dollar, is making goods less competitive on global markets. Germany would be particularly vulnerable to any possible currency and trade war because of its strong export sector.
Hans Heinrich Driftmann, president of the DIHK German Chambers of Commerce, warned that attempts to gain a competitive edge by keeping a currency at a low value could result in new trade barriers. "At the end, there would be only losers," Mr. Driftmann warned in Tuesday's online edition of the monthly Manager Magazin.
Chancellor Angela Merkel wants China to let its currency reflect its true value, her spokesman said Friday, but he also included the U.S. in his criticism and said that Washington might keep the dollar undervalued.
China should make its exchange-rate regime more flexible so that the global financial system isn't subject to volatility and instability, European Commissioner for Economic and Monetary Affairs Olli Rehn said Saturday.
"Going forward, risks of excess volatility and disorderly movements in exchange rates should be avoided in view of their adverse implications for economic and financial stability," Mr. Rehn said during a speech before the IMF's policy-steering committee. "In this respect, the Chinese authorities are encouraged to implement soon a more flexible exchange-rate regime for the [yuan]."
China in mid-June ended a two-year peg of the yuan to the dollar, but has since let its tightly managed currency rise just 2%. Japan publicly intervened Sept. 15, selling some two trillion yen ($24.4 billion).
