[International Herald Tribune, France]



Izvestia, Russia

Evil Obama and China's Yuan: It's About the Midterm Elections


"The American public has the attitude of 'come on guys, do something!' So they are, including on the currency front. … In the United States, it's once again becoming fashionable to behave as if the world hasn't changed in the last 20 years. The result has been that a friendly Obama has become an angry one."


By Dmitry Kosyrev


Translated By Igor Medvedev


October 21, 2010


Russia - Izvestia - Original Article (Russia)

Chinese Prime Minister Wen Jiabao: His message to the United States is 'Don't Tread on Us' over the yuan.  


FINANCIAL TIMES VIDEO: U.S. Trade Representative Ron Kirk attempts to defend the Obama Adminstration trade policies with FT Editor Alan Beattie, Aug. 26, 00:11:17RealVideo

On the surface, the issue provisionally referred to as “the U.S.-China currency war” is creeping slowly into one piece of congressional legislation after another. Most recently, this has come in the form of a bill against “countries that manipulate their currencies.” In essence, it's a bill that targets China. The bill is expected to pass every legislative hurdle this month. At that point, the U.S. administration will obtain a club for imposing import tariffs on China to compensate for the impact of the undervalued yuan - although it may not use it.


Various U.S. administrations have unsuccessfully struggled for years to get China to allow the yuan to appreciate. Talks about how everyone is deflating exchange rates aren't new - starting with the U.S.: under the Obama Administration, the value of the dollar has “fallen” by about 20 percent - and this policy has been quite deliberate. Since January, the euro has lost about 17 percent of its value. In this crisis, and excuse me for saying so, everyone wants their exports to be like China's - cheap and high quality - and to revive their economies. This is just the same as if the yuan had appreciated by 20 percent and 17 percent, respectively. Ordinarily, all of this would be extremely boring. But apart from the superficial issue of “currency history,” there are two very specific and truly interesting aspects of the situation.



The first concerns the conceptual anxiety of the Obama Administration's foreign policy struggles. The second concerns Chinese notions about its transition to a new economic model.


As for the anxiety: After the year that just passed, Barack Obama would not have won a Nobel Peace Prize. Because his administration, like a rubber band, is being pulled toward the foreign policies of Bill Clinton, but without the moral and financial resources that Clinton had.


Here is an assessment made by the Washington Post: Obama spent his first two years restoring America's image in the world, and now he is returning to the policy of “using American power”; before there was the peace of the G-20, now we'll once again have the peace of “the U.S. and it democratic allies.” The promotion of “essential American interests” is on the upswing, and words like “freedom” and democracy” are increasingly returning to common use.




Global Times, China: More Poor in America than China? Think Again!

China Daily, China: Instead of Carping Over its Currency, West Should Thank China

Estadao, Brazil: Global Exchange Rates: From Abundance to War

Die Welt, Germany: It Isn't China's Fault: America Must Reform its Economy

The China Daily, China: China 'Will Not Tolerate' U.S. Exchange Rate Threats


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And since China has rejected the idea of “joint control of the world with the U.S.,” America is signaling to anyone who will listen that they'll be protected from Chinese pressure. Not much will come of this - neither from the smaller countries in Asia or even Japan, who don't seek an overt "containment" of China - their most important trading partner. But the American public has the attitude of “come on guys, do something!” So they are, including on the currency front.


This is due to the November Congressional elections, but not entirely: voters always want to return to an era that's one step behind current reality. Moreover, U.S. voters are tired of defeatism. Intellectuals have gone overboard with jokes like: “the dollar is pegged to the yuan.” Books like Michael Mandelbaum's The Frugal Superpower: America's Global Leadership in a Cash-Strapped Era have become extremely popular. In the United States, it's once again becoming fashionable to behave as if the world hasn't changed in the last 20 years.


The result has been that a friendly Obama has become an angry one. The American Gorbachev now wants to become an American Chernenko. In other words, he wants to take a respite from change. That's not necessarily a bad thing. Back in the 1990s, Russia greatly benefited from tense U.S.-China relations and was slightly fearful of U.S.-China adoration, which was evident under Bush. But now, things have again turned around: Obama is further strengthening Russian-Chinese friendship, and the better our relations with China, the better things will be with the E.U.


The Europeans, for example, are very interested in the details of the Russian-Chinese oil and gas agreements, which were signed after President Medvedev's visit.


But beyond this, another plot is evolving. Once upon a time, America was to Japan as today it is to China; in the U.S. [during the 1980s], it was customary to despise the Japanese for essentially the same thing: economic growth based on successful exports and an undervalued yen, as well as the purchase of U.S. companies by Japanese. The U.S. administration pressured Japan to allow the yen to appreciate. And it finally succeeded - in 1985, the value of the yen doubled and Japan was crushed (the famous collapse of its “bubble economy”). It has yet to recover.    



The Chinese are certainly well-aware of this - just as they are of the fact that they, themselves, must soon change their economic model (this was discussed in Beijing at the just-concluded plenum of the ruling Communist Party). Because the Chinese economy earns very little in its role as a “manufacturer to the world.” Most of the money is earned by the foreign creators of intellectual products that are only assembled in China. Because this is the case, Beijing is adopting a path toward innovation (and closing about 2,000 steel and cement plants). In other words, Moscow and Beijing have fairly similar plans and ideas.


Such a turn of events, however, means higher wages and a high rate for the yuan. The U.S. and Europe are encouraging China to do this in the hope that Chinese consumers will become avid importers and extricate the U.S. and Europe from the economic crisis. Although some may also be hoping that if China is given a strong-enough shove in the direction of yuan appreciation, it will share the fate of Japan.



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[Posted by WORLDMEETS.US October 21, 7:09pm]


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