Today I found this from Ambrose-Evans Prichard, Telegraph:
The long-simmering clash between the world's two great powers is coming to a head, with dangerous implications for the international system. 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.
Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc.
"It's going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we're not going to get anywhere," said Paul Krugman, this year's Nobel economist. …
I let others discuss the rights and wrongs of this, itself a response to the US report card on China. Clearly, Beijing is in denial about is own part in the global imbalances behind the credit crisis, specifically by running structural trade surpluses, and driving down long rates through dollar and euro bond purchases. No doubt the West has made a hash of things, but the Chinese view of events is twisted to the point of delusional. …
We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur. Emerging Asia, Brazil, Egypt and Europe are all irked by China's yuan-rigged export dumping.
Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression. …
Contrary to myth, the slide to protectionism after the 1930 Smoot-Hawley Tariff Act did not cause the Depression. Trade contracted more slowly in the 1930s than this time. The Smoot-Hawley lesson is that tariffs have asymmetrical effects. They devastate surplus countries: then America. Deficit Britain did well by retreating into Imperial Preference. …
I have recently thought that both the irony and the tragedy of The Smoot-Hawley Tarriff Act of 1930 (Wikipedia) was that the US imposed the tariff at precisely the wrong moment in history—the US then being a "surplus country". Perhaps now is the right time. Or perhaps some diplomacy in advance of a trade war will prove a better approach going forward. That way world leaders can talk through all the tough economic issues, including trade flow, capital controls, and finance channeling (i.e. whether or not to reinstate some sort of 21st Century Glass-Steagall (Wikipedia), country by country or worldwide). It will prove interesting to see what the blogosphere makes of Prichard's thesis.
Related (Smoot-Hawley):
Is Smoot-Hawley Coming Back? Michael Pettis, Seeking Alpha, Nov. 2008
China's Smoot-Hawley, Yves Smith, Naked Capitalism, Nov. 2008
Smoot-Hawley Fiction, Bob Powell, Feb. 2009
US-China Trade Relations—The Next Dispute?, Michael Pettis, Feb. 2010
Greg Mankiw says NO!, March 2010, and points to a NY Times column from a year ago: It's No Time for Protectionsim, February, 2009. Mankiw's point is, in part, that China's currency had already appreciated 21% by early 2009.
{Update}:Joesph Stiglitz says No! in It's No Time for a Trade War, Project Syndicate, April, 6, 2010
Related (Capital Controls):
The End of an Era in Finance, Dani Rodrik, Project Syndicate, March 2010
i find it amusing, if a little "roll of the eyes" when a western academic / commentator talks about how "push comes to shove, china's neighbours will side with the US...
really? i'm finishing up on my postgraduate degree now with the Asia-Europe Institute in KL and belong to a very diverse faculty, incl. Vietnamese, Chinese, Korean, Indian and Pakistani. you might be amazed at the amount of goodwill is apparent in our talks and conferences towards China and even its current property bubble building up, whereas the same can't be said for Washington, to say the least. the same was seen in my travels as a senior journalist with a local business desk the last several years.
to these gentlemen, i'd suggest stop being another armchair theorist making judgement calls on a country/countries 5,000 miles away; that's how you keep making the wrong calls and wonder "why isn't anyone listening to me?". China may as yet suffer terribly in the near future, but goodwill won't be coming Washington's way.
Posted by: reeza | April 07, 2010 at 01:34 AM