T Nation

Why is China So Cool?


#1

Long story short, the US is trying to get China to appreciate its currency, and is looking for other nations to back it up so it doesn't look like American bellyaching. Allies are in short supply, because India and Brazil prefer dealing with China mano-a-mano and the EU is too caught up being European to really care.

The the first of two things I thought were interesting is the above quoted 'irony'. I don't think China particularly minds having a greater domestic market, because that means less reliance on the American and EU markets, and therefore greater bargaining power. What I do think is that they want to limit the growth of their middle class in an effort to retain power over their populace (as seen with the shut-out of the Nobel Peace Prize. A weak currency is only as strong as the use they put it to, and is not an end in itself, as Drezner seems to be implying.

The second is the failure of international organizations designed to deal with these trade disputes. China is the new kid on the block, and it really seems like everyone from investors to NGO's are going out of their way to allow China to save/keep face (Norway not withstanding). Why is this? Much of the purpose of the G20 and WTO is to allow for a system of formal complaints to be brought and judged. If we have a formal system, why opt for the informal route? as is seeming the case.


#2

You're flying over alot of people's head. What evidence you have that the G20 and WTO are giving China a handy? Human rights stuff?


#3

First of all I disagree with the premise that keeping a currencies value artificially low is "freeriding". It is a distortion, but so far it has been a subsidy to the west and not a burden. Of course this distortion will correct itself sooner or later which will hurt all parties invilved, but the only ones that seem to do any long teem planning are the Chinese and they seem to have other priorities.

The US can do nothing about it, because announcing that you intend to inflate your way out of your misery and then accusing your main creditor of being unfair would be blatantly absurd.

Also, the corrections that would take place if China let the Yuan float would also hurt the US and there is no garantuee that the jobs would return to the US, they might as well move to South America.

Europe has problems on her own, with the PIIGS practically bankrupt a trade war with China is not in our best interest right now.


#4

Within the context of this issue, the article talks about Brazil and India preferring informal means of commucation (dealing with china unilaterally, rather than bringing the issue to the floor of the international institutions designed to deal with trade disputes). That's what I'm referring to- not the G20 and WTO bending knee to worship a new master, but the preference of individual nation states to resolve their issues with China by dealing with China, as opposed to publishing their greivances abroad.


#5

No, its a subsidy to China. I see what you're getting at, that US consumers are getting goods and services cheaper than they would otherwise, so why are they complaining. But if the Yuan is undervalued, and the Real and Rupee aren't, then sales will go to China, and not Brazil and India. This empowers China at the expense of more democratic states, and thats not a good thing.

Sure. But them going to Sudamerica is preferable to them going to China. More than that, I'm not so sure about. I'll have to give some thought as to how many jobs would return to the US. China buys capital goods (which we sell), but so does Germany and Israel, and a stronger Yuan wouldn't necessarily mean they'd buy from us.

Because America does not have a series of fiscally profligate states?


#6

I think China is in trouble with making friends or maybe better said loosing friends, and in trouble with currency manipulation. Many efforts have been made to get China to stop currency manipulation and allow freer trade, but to this point China isn't playing ball. Thought this two articles explained well what is going on.

"In the Footsteps of the Kaiser: China Boosts US Power in Asia"

In the Footsteps of the Kaiser: China Boosts US Power in Asia

"ChinaĆ¢??s Currency War: Enemy #1 for Global Economy"
http://www.moneyandmarkets.com/chinas-currency-war-enemy-1-for-global-economy-40326?FIELD9=1