First, no country including US has the right to tell other countries to appreciate their currency. The era of ‘you’re either my puppet or my enemy’ is long past and Obama is still living in the past glory. He blames China for all our ills, as he cannot fix our problems.
Keeping the Yuan low actually helps US's consumers and US in buying wind turbines or HSRs from China at lower prices. Not to mention the huge loans from China. US wants to depreciate its currency to lessen their loan burden to foreigners. It would not be effective if the foreigner's currency depreciates at the same time. When we print money at this rate, it is our way to manipulate currency.
China does not want to withdraw the bad loans as they do not want to kill the goose that lays the golden eggs. It is US trick to lessen the burden of their foreign loans by depreciating its own currency.
The major products of China and US are not the same, so there are no direct competitions. If we do not buy the products from China, most likely we'll buy same products from Mexico, India, or any countries with low labor-cost. China rose because of the terminating the trade embargo when US played China card against Russia. They may play India card against China. However, China and US are not enemy on day one.
Until China builds up its local market for its growing middle class, I do not see Yuan will appreciate by more than 5% a year. The current problem of high inflation in China is due to the pegging its currency with USD. The peg is loose now and it should accelerate to do so when the local market is more important has been fully developed.
A strong China is good for the world including US! China is just one part of the global economy. The other players are research companies from the west and the US, oil from Middle East and Africa, and commodities from Australia, Brazil… Everyone benefits including the consumers in every country.
Lord Obama and his 'advisers' including Uncle Ben and Tiny Tim can do a lot of good if they looked longer-term (more than 4 years for re-election). To give generous welfare to buy votes and creating jobs for the lazy government servants are definitely not good for the country. Have we learned from California? The QE1, QE2, and the coming QE3 are depreciating the USD. Are we hypocrites to blame China on same?
It was an error US and other country asked China to change the value of the Yuan during SE Asia crisis. China is not that dumb to fall in the same trap that made Japan's economy suffered in the last two decades.
(c) TonyP4 1/22/11. Updated 7/12/11.
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Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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Roach is correct and I do not know how Krugman got his Nobel prize and in this issue he is totally wrong.
ReplyDeleteOnce you have 25% tariff, you have a trade war unless you believe you're the master/policeman of the world (yes US was in the past but no longer true).
Every one will suffer. China will buy the technology they need and air planes from EU and Russia. The consumers in US will suffer - be ready for pay a $20 toaster.
The oil price will plunge and so are most commodities. Middle Eat, Brazil, Australia and Canada... will all suffer
China will pull out the trillion of US debts and US will be plunged to the dark age and the entire world will suffer.
China will go to about 5% GNP growth rather than the 8%. There will be social unrest due to excess laborers.
I just do not believe what planet this guy is from and the mockery part is he got a Nobel prize - trying to destroy the world economy!!!