The U.S. wants China to revalue its currency, the yuan or renminbi, upward. China flatly says “no.” Bloomberg reports that China’s premier, Wen Jiabo, says:
“I don’t think the renminbi is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”
Yves over at Naked Capitalism has a post on where this could lead. Basically, the outlook is trouble for all sides, but more so for the Chinese. She writes:
China’s position is untenable. It has no ready way to retaliate against the US without damaging itself. Stop buying Treasuries at auction? That would drive the RMB up, exactly what they are trying to avoid. Apply tariffs to US goods? Yes, that would hurt specific US exporters, but given China’s massive trade surplus with the US, we come out net ahead on any trade war. Withhold strategic US imports, like chips? That could be disruptive short term, but would lead over time to permanent relocation of production outside China.
And she quotes Ambrose Evans-Pritchard in the Telegraph, who says that China is badly overestimating its power, and will come out the loser if it does not back down:
China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand.
Personally, I start tuning out when the Brits start making pre-World War I references, but Pritchard goes on to make good points about the military balance in the Asian region and how China could be misjudging the situation.
I think a Mexican Standoff analogy is better. The Chinese think we’re bluffing. They’re about to call our bluff. Both sides are capable of inflicting damage on the other. Is there a way out of this without an explosive confrontation?
Related Posts
- Is China on the Rocks or Not? (09/10/08)
- China, China, China! (11/11/08)
- China’s Currency Cheating Finally Gets Noticed (03/17/10)
- Is China’s Boom Slowing Down? (06/29/10)
- Will China Ban Exports of Gold and Silver? (09/17/09)
{ 1 trackback }
{ 2 comments… read them below or add one }
I don’t know how well you know Yves over at Naked Capitalism but Yves is usually a guy’s name not a she…….
Well, Bruce, it’s a play on words. Adam Smith is one of the great names in economics. Then we get the word play of Adam and Eve, and then for fun, or maybe to tick off the franco-phobes, “Eve” is turned into “Yves”. But go read her page, and you’ll see Yves is the pen name of the woman who writes the blog.