The world's biggest exporters, led by China, are ganging up on the United States in advance of the G20 meeting against quantitative easing, or pumping money into the system. The US is doing this to offset the fact that China and others are cheating by artificially keeping their currencies down in value and refuse to stop doing so.
China's Yuan is between 25% and 40% lower than it should be through the use of Japan Inc.'s techniques. The two pile up US reserves, because they don't convert their US dollar export earnings into Yuan or Yen. To do otherwise, would increase their currencies' values along with the cost of their exports. It's trade cheating, or dumping.
Now Germany has begun to hector the US too. It was only this year overtaken by China as the world's biggest exporter and has become China's new best friend. But China has played the German card very well: It facilitated the importation of German cars (a huge bonanza) and it has also been supporting Greece's junk bonds so that Germany doesn't have to and so that the Euro doesn't collapse too much which would hurt Chinese exports in the EU.
Meanwhile, Canada had better get into action here.
The Canadian dollar is tied to oil prices and the health of the US economy. So it would be a good idea for Canada to wade into this currency struggle by pushing and lobbying vigorously for a new Bretton Woods arrangement as soon as possible.
By the way, China dumps in Canada too and this soaring trade imbalance shows: In 1990, Canada and China sold one another $2 billion. By 2009, Canada's exports to China grew to $5 billion (raw materials mostly) but China's trade to Canada hit $19 billion.
The US story is similar but not as bad as Canada's. It has gone from selling $16 billion to China to $65 billion between 2000 and 2009 while China's exports to the US have gone from $100 billion to $296 billion.
On a net basis, that represents an outflow of wealth from both the US and Canada of $245 billion in 2009, or the annual economic output of Quebec or, in the US, of Colorado. Free trade and globalization are grand ideas when the playing field is level. It isn't.
And Canada must join the US and others then be considerably more vocal about the need for the G20 to rebalance the world economy. Then Ottawa must adapt its currency strategy to avoid over-valuation, as the US does what it needs to do, which is to manage its dollar's devaluation through quantitative easing.
The Americans cannot do otherwise because their only other option -- because of China's intransigence along with others -- is to impose a tax of at least 25% on Chinese imports to level the playing field. That would bring about a catastrophic round of protectionist measures.
The Chinese are jawboning and stalling to look after their people. But they must learn that the first rule of business is to insure that your customers are whole and that's not happening here.
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