J-10
06-26-2007, 09:43 AM
http://www.thestar.com/Business/article/229004
Jun 25, 2007 04:30 AM
David Crane
The United States may be about to do something really stupid, which is to launch a trade war with China.
Such a misguided step would do much damage to the world economy and reinforce the view, not only in China but in other emerging market countries, that the United States does not really want them to succeed. Moreover, China would be bound to retaliate.
What's driving the "blame China" crusade in the U.S. Congress is itsgrowing trade deficit with China.
It's true the United States has a huge trade deficit with China. But the actual deficit is seriously overstated since many Chinese exports consist of parts and materials imported from other countries and simply assembled into finished products in China. Chinese value-added, or content, in its exports is only about 25 per cent of their final price.
The real problem the United States has is that it seeks to maximize consumption today and forego savings for the future.
The U.S. financial system encourages families to take the equity out of their homes through new mortgages so they can spend more, or to assume even greater levels of other debt for current consumption. You can't blame the Chinese for that. They are supplying American consumers with products Americans want to buy with this extra money. At the same time, the United States has a massive budget deficit that shows no sign of disappearing.
Americans are fond of lecturing others on how to behave, as they are now doing with China.
But as The Financial Times asked in a recent editorial, "What would Capitol Hill think of a Chinese `get tough' ultimatum, declaring Beijing's patience at an end, requiring immediate action to cap mortgage-interest tax relief and cut public spending, on the pain of sanctions? The reaction would be gibbering, uncomprehending rage. Yet those American policies have seriously destabilizing global implications, just as surely as does China's decision to peg its currency."
Perhaps the biggest issue is the U.S. has yet to come to terms with the reality the world is changing and, in relative terms, it is a declining superpower. In fact, acknowledging we are moving into a different world is a problem for all Western countries, including Canada.
The G-7 nations continue to see these emerging new players as inferiors, rather than as necessary partners in ensuring a peaceful, prosperous and sustainable world in the years ahead.
The recent G-8 meeting in Germany was an example of that outdated approach, with leaders from China, India, Brazil, Mexico and South Africa treated as unqualified to be in the same club.
In a condescending decision, the G-8 leaders did announce they might reconsider this a couple of years from now. But in the meantime, these countries must subject themselves to more lectures on how to run their countries from the rich nations.
Yet the world faces huge changes in the years ahead as countries such as China and India become much more important in terms of size, financial strength and technological capability. The way we attempt to manage or guide the global economy has to reflect the interests of the new countries as well as the old established players.
In 2005, the top five economies in the world were the U.S., Japan, Germany, France and Britain. By 2050, Goldman Sachs estimates, they will be China, United States, India, Brazil and Mexico. What the Americans cannot accept is that at some point they will no longer be number one. But a destructive trade war would not change this.
Jun 25, 2007 04:30 AM
David Crane
The United States may be about to do something really stupid, which is to launch a trade war with China.
Such a misguided step would do much damage to the world economy and reinforce the view, not only in China but in other emerging market countries, that the United States does not really want them to succeed. Moreover, China would be bound to retaliate.
What's driving the "blame China" crusade in the U.S. Congress is itsgrowing trade deficit with China.
It's true the United States has a huge trade deficit with China. But the actual deficit is seriously overstated since many Chinese exports consist of parts and materials imported from other countries and simply assembled into finished products in China. Chinese value-added, or content, in its exports is only about 25 per cent of their final price.
The real problem the United States has is that it seeks to maximize consumption today and forego savings for the future.
The U.S. financial system encourages families to take the equity out of their homes through new mortgages so they can spend more, or to assume even greater levels of other debt for current consumption. You can't blame the Chinese for that. They are supplying American consumers with products Americans want to buy with this extra money. At the same time, the United States has a massive budget deficit that shows no sign of disappearing.
Americans are fond of lecturing others on how to behave, as they are now doing with China.
But as The Financial Times asked in a recent editorial, "What would Capitol Hill think of a Chinese `get tough' ultimatum, declaring Beijing's patience at an end, requiring immediate action to cap mortgage-interest tax relief and cut public spending, on the pain of sanctions? The reaction would be gibbering, uncomprehending rage. Yet those American policies have seriously destabilizing global implications, just as surely as does China's decision to peg its currency."
Perhaps the biggest issue is the U.S. has yet to come to terms with the reality the world is changing and, in relative terms, it is a declining superpower. In fact, acknowledging we are moving into a different world is a problem for all Western countries, including Canada.
The G-7 nations continue to see these emerging new players as inferiors, rather than as necessary partners in ensuring a peaceful, prosperous and sustainable world in the years ahead.
The recent G-8 meeting in Germany was an example of that outdated approach, with leaders from China, India, Brazil, Mexico and South Africa treated as unqualified to be in the same club.
In a condescending decision, the G-8 leaders did announce they might reconsider this a couple of years from now. But in the meantime, these countries must subject themselves to more lectures on how to run their countries from the rich nations.
Yet the world faces huge changes in the years ahead as countries such as China and India become much more important in terms of size, financial strength and technological capability. The way we attempt to manage or guide the global economy has to reflect the interests of the new countries as well as the old established players.
In 2005, the top five economies in the world were the U.S., Japan, Germany, France and Britain. By 2050, Goldman Sachs estimates, they will be China, United States, India, Brazil and Mexico. What the Americans cannot accept is that at some point they will no longer be number one. But a destructive trade war would not change this.