Leaders of the western industrial nations and emerging economies are gathering together to participate in G20 summits for the first time in Asia to negotiate an agreeable global economic solution to prevent economic protectionism that satisfies both the developed western nations and the emerging economies.
Developed western economies with very low growth rate are facing the challenges of high unemployment and massive deficits. Emerging economies with high growth rate presently need western markets for their exports.
G20 Ministerial meeting couple of weeks ago has put trade imbalances and forex exchange rates on top of the agenda of the two days G20 head of states summit beginning tomorrow.
United States has been pushing China to quickly increase the value of yuan by 20-40% and to decrease the trade imbalance by 4%. China has refused US demand to drastically appreciate yuan by 20-40% calling it a “shock therapy” that will lead to social and economic unrest in the country.
Higher yuan and lower dollar can bridge the gap in trade imbalance between United States and China as it will enhance Chinese buyers’ purchasing power and make American products competitive.
The second round of United States policy of “quantitative easing” has intensified the currency row and it is criticized by Germany and China for weakening the value of dollar.
A weaker dollar to enhance U.S. exports will result in depreciation of forex reserves traditionally kept in dollars in all the countries, and it will also lower U.S. national debt.
Drop in the value of U.S. dollar will adversely affect China the most being the leading lender to United States and having US $2.65 trillion in forex reserve.
Japan and Brazil had intervened in forex markets earlier to limit the appreciation of their currencies.
China has refused to accede to pressures from western developed countries with dwindling economies especially from USA.
After G20 ministerial summit US treasury secretary visited China. British premiere David Cameroon visited China before heading for G20 head of states meeting. German finance minister visited China and criticized US tactics to bog down China. Germany is expecting to have $100 billion trade with China.
All the western countries are wooing China to partake in its massive and growing economy.
China is leading the emerging economies because they are facing the same economic challenges from within and from the western world as China.
The G20 summit is fraught with challenges for developed western countries and emerging economies. A positive outcome of the meeting is not expected and a negative conclusion can lead to further national economic protectionism.
On the eve of the summit, World Bank president Robert Zoellick said the largest economies “need pro-growth policies, structural reforms, open trade and an anti-protectionist agenda”.
Global economy is a fact and without cooperation every other way leads to loss for all the western economies and emerging economic nations including United States and China.
United States and China have to stand up to the global historic moment of shifting economic power from western developed nations to the massively populated nations with emerging economies and learn cooperation and co-existence. Paranoia will only lead to protectionism.
America has lost its financial canine teeth and China has newly acquired financial canine teeth. Both United States and China have to settle down from gnashing false teeth and grinding baby teeth, as it will hurt the newly lost teeth just as much as it will hurt the newly acquired baby teeth.
Ibrahim Sajid Malick is a Pakistani-American writer, technologist, and social entrepreneur. He has been writing on Pakistani society and politics since 1986. He has held several media, communications, and technology positions for organizations large and small. Mr. Malick graduated from New School for Social Research with a master’s degree in anthropology. He holds several technology and management certifications. He works for a leading technology firm and blogs at www.ibrahimsajidmalick.com
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United States still has the largest market of the world and is on top of technological advancements. China has a long way to go before catching up with her.
I agree with your analysis – and love your ‘new teeth – old teeth’ analogy. I wonder if both the US and China have dentures – excellent cosmetic value but no bite
Bernanke, at the Federal Reserve, a PRIVATE organization, owned jointly by the major banks, UNILATERALLY announces the purchase of Bonds, not to lower their currency to give them an export edge, as is widely reported, but to make bonds less attractive to investors. (does anyone else notice how crazy this is? The government can’t agree to start public works to create jobs but a private organization that doesn’t even answer to congress can make a $600 Billion decision that unbalances everything). They are forcing investors hands by lowering the returns on their bonds so that stocks are the next best option to those that are risk-averse but desire better returns in an effort to spark growth making more money available to businesses that are confronted with no demand. In all of this mess, commodity prices rise which raises the cost of living.