Chinese protectionist flashback
Here’s how I see things playing out:
- Congress looks at this report and concurs that the key to ending slower global growth is to correct global imbalances via a Chinese currency revaluation. Fair enough.
- However, individual Congressmen, looking to reassure jobless constituents ahead of the midterm elections, will escalate by presenting bills to ‘punish’ China if no actions are taken.
- China will be aghast at this and, in a further escalation, start making noises about ditching the dollar.
At this point, the question is how does this get resolved. To date, bilateral U.S.-Chinese economic tensions have escalated and led to protectionism. Further escalation will yield unpredictable results and will be destabilizing. Chinese officials cannot be seen by their domestic constituency caving to American pressure. This would undermine their authority and create problems domestically. Therefore, a public frontal assault on the renminbi peg is likely to backfire.
I wrote this in October of last year. Isn’t this exactly what is happening? Just wait until April 15th. That’s when the fireworks will begin.
About Edward Harrison
- Should we expect a protectionist China? 19 Jun 2009
- Jagdish Bhagwati: Obama is a protectionist 9 Jan 2009
- US angling to get Chinese to revalue renminbi 16 Oct 2009
- Chinese tariffs of up to 25 percent on Russian and American steel 10 Dec 2009
- The Chinese bubble economy 11 Jan 2010
Ed,
Why April 15? (Don’t beat me up for not paying attention – I just can’t remember seeing that date mentioned by anyone…)
Cheers
Rohan
I believe that’s when The Treasury Secretary presents the Semi-Annual Report to Congress on International Economic and Exchange Rate Policies.
He will probably use more colorful language than he did last time. The the term was ‘flexibility.’
http://www.creditwritedowns.com/2009/10/us-angling-to-get-chinese-to-revalue-renminbi.html
All good thanks Ed. I’m a big fan of colorful language…