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article imageOp-Ed: Talking about dumb, US trade war threat annoys China

By Paul Wallis     Sep 15, 2010 in Politics
The relationship between the world’s two biggest economies about China’s Yuan has developed an aggressive tone. A Chinese think tank predicts that the US would come out worse in a trade war. US experts are saying “bring it on”. They’re both wron
And with the US economy acting like a deflated water balloon, there are risks involved.
This is exactly what the world needs, in the biggest recession since 1929. China and the US, whether they like it or not, are in lock step. US imports from China were until the GFC considered the greatest, smartest thing in the world. The fact that they gutted US employment and reduced incomes, creating a service economy on minimum wage, of course, wasn’t, and apparently still isn’t, an issue.
China thinks it holds all the cards. It does hold a great No Trumps hand. It’s the world’s factory, it has massive foreign reserves (about $2.5 trillion) and says it could sell some of that $1.5 trillion of US government debt.
(Thanks again, Wall Street, you’re bricks. Have you considered burning down the Statue of Liberty and calling it one of the God-given rights of Free Marketing, yet?)
Finding buyers, however, is another matter. Whether anyone wants to buy US government debt is debatable. The number of people with any significant part of a lazy trillion or so are pretty thin on the ground, too. If they want to sell debt one grain at a time, it could be a long drawn out process. A further issue is the fact that it’s not in China’s interest for the US dollar to do any kamikaze dives, either. That would seriously damage the value of their USD holdings.
The US, predictably, has its own cockamamie ideas. The idea of a lower dollar has miraculously appeared as a way of stimulating the economy. “If our products are cheaper overseas, we can sell more of them,” says Junior, who looks adorable in his straitjacket in Fall. It’d also send prices through the roof in the middle of a recession with 10%+ unemployment, but what the heck, it sounds nice.
Actually, a strong USD can have a significant impact on debt, if anyone remembers how. Some intelligent manipulation of forex could pay off that debt with change left over, but apparently thinking or anything resembling thinking is out of fashion in the US these days.
A trade war with the country manufacturing US products has to rank among the all-time dumbest ideas in a long history of dumb ideas. Just when the world is starting to half heartedly believe there may be a bit of a future without another massive financial hit to the US economy, too.
Another possible effect of a dinosaur-oriented dollar would be what I call the “Russian effect”. This is based on a series of events:
1. Dollar nosedives to very low levels like the ruble in the 90s.
2. Assets (including financial products and equities) are practically valueless, and prices skyrocket because of shortages.
3. A bare bones policy restarts the economy, and anyone who was holding USD when the proverbial hit the fan is now a well-informed pauper.
How does this happen? A big dump of the USD would do a lot. The resulting global bloodbath would leave a lot of people very short of capital, scratch one global recovery, and forget a US recovery. China would get the backlash of a lot of broke customers.
This is thinking?
When?
Forget a trade war, if any of you wants to see any money moving around outside the graveyards.
Suggestion to Beijing and Washington: Get your psychiatrists on speed dial.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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