I just made a comment one day ago. As reported by Agence France-Presse in Washington, Obama came with blunt words on the Chinese Yuan. Chinese government took it rather well as they think (like me), it’s a lot of political smoke and the USA has little choice but to peddle back. Though I sometimes think, yeah, good idea, go for the trade war. China will have a hard time at first, the U.S. MNC would lose big money here (their exports suffering), U.S. consumers would see prices going up. And China would have no choice but to finally change its economic model, away from cheap exports.
As reported by AFP, Obama has set the stage for a possible trade war with China after branding it a currency manipulator, a term his predecessor George W. Bush skillfully avoided despite pressure from lawmakers.
His treasury secretary-designate, Timothy Geithner, said on Thursday in written testimony to senators quizzing him over his pending confirmation that “President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency”.
Mr. Obama had pledged to “use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices”, Mr. Geithner said.
“This is definitely setting the stage for some bad blood between the two countries, and I anticipate that over the next year or so, trade fiction is going to become somewhat more heated,” said Eswar Prasad, former China division head at the IMF.
Mr. Geithner hinted that any moves to tighten laws against currency manipulation would ensure that “countries like China cannot continue to get a free pass for undermining fair-trade principles.
But heavy US dependence on Chinese capital may limit Mr. Obama’s options against Beijing. China has overtaken Japan as America’s biggest foreign creditor, and as of October, held US$652.9 billion in US Treasury bonds, according to the latest Treasury Department figures.
My position is that the “currency manipulation” theory is completely wrong. The real issue is market access here.
Obviously costs here are low and China does not spend enough to safeguard the environment (and other things…)
See here excellent chart from SCMP.