< HOME  Monday, April 24, 2006

Clash of the Titans: US vs. China

It's becoming increasingly clear that the US expects China to foot a significant part of its gargantuan trade deficit through a sleight of exchange rates.
The IMF was given a mandate to start immediate negotiations between the countries with the largest trade imbalances. Its goal will be to secure agreements to reform economic and exchange rate policies to close trade gaps and prevent a global financial crisis. If successful, it could lead to big changes in economic policies, including an appreciation of China's renminbi.

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The US, in particular, is pleased at the growing recognition that its record trade deficit is the product of global forces, not just its own governmentdeficit, and has to be resolved in a way that sustains global growth.

A senior US official said: "I think that surplus countries are beginning to understand that there will be no adjustment unless they are a part of it."

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Zhou Xiaochuan, governor of the People's Bank of China, warned the IMF's governing body not to use multilateral surveillance as a mechanism to attack its exchange rate policies. "If surveillance is wrongly focused on an evaluation of the exchange rate level . . it will hardly be objective and certainly miss more fundamental issues."
Greenspan and gang really did a number on US. The US and China are on an economic collision course that threatens to destroy our economy either through trade wars or military conflict.


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