Conflict ahead? Or are new solutions going to be the outcome?
As the USA threatens to talk to Taiwan and impose punitive tariff barriers on China, the impact on the world can be war, trade wars, or the emergence of a new global understanding.
The short article at the end comes from an observant China source. It might have not been noticed as the focus was on the fed’s decision to raise rates.
This means the RMB will not weaken as the dollar strengthens as money moves to take advantage of higher usa rates. Money will get the same benefit by staying in the RMB.
Does it mean the Chinese have struck a deal to link their moves to USA moves to avoid lowering the RMB to help their exports – a peg? Possibly.
I favour an explanation that the Chinese moves are consistent with Chinese policy to reduce debts and one way is to make them more expensive.
There is also the feature that the trade deficit of the USA, which involved raising the value of the dollar, was a deliberate policy from 1974 onwards to increase the amount of dollars in global circulation, and, thereby, increasing the size of the dollar economy. This became very large but also unwieldy with other consequences, such as industries moving out of the USA to lower cost places. This had a knock on effect on jobs and wages in the USA.
While many in the USA applaud the USA for moving finally to address this fault in their economy, it also means the RMB and Euro might gain global market share from the dollar.
And can the USA on-shore jobs/industries simply by protecting their economy with tariff barriers, whilst raising the value of the dollar, making imports cheaper?
Many of the industries that were exported were built by European immigrants who have now passed on in every sense.
Who can rebuild the American textile industry which went all the way back to cotton and oil sourced materials?
While it is possible to fantasise about making garments in the USA again, it requires investment all the way back to oil based raw materials and cotton.
America is similar to Africa in a sense. Africa has the cotton and young, low cost people to become a major world supplier of garments. But the USA does not. The USA has the market – the biggest in the world. It can control imports. It can prefer suppliers and create policies which make local manufacture subsidised by barriers. Both continents require major polices to be developed and bought into.
But a real rebuild of American production of textiles is not simple. It requires a new approach to the supply chains and the technologies that drive productivity and competitiveness. Who has that?
For both Africa and the USA the answer is China.
And that is the dilemma for both nations. They can make great benefits from each other but they don’t trust each other. The USA thinks China has eaten its breakfast and will eat its lunch if not stopped. China thinks the USA is trying to stop the re-emergence of China and the changes that requires in many areas of the world.
They are both right. And wrong. The analysis stops short of developing a positive option. It is simple to see it but who will blink first?
China will offer the USA ways of getting out of this circle which works against the USA in the long run. China needs a positive relationship with the USA for a number of obvious reasons. The USA could benefit from a positive relationship in a number of less obvious ways, such as constructing a new textile industry, and a whole series of consumer goods industries, and a massive nationwide high speed train network to name but a few.
So will they buy into each other? And can it be done without trying to control and contain each other? This is the big issue of our times and of the next 5-10 years. And issues like Iran and Ukraine and many others may distract and break progress.
And we will know where it is going by watching carefully, but most probably by hearing after the event, if there is a single event.
All this comment started from a simple report of a 0.25pc increase in interest rates….