As the USA gets prepared to bite the hand that feeds you have to wonder if they’ve really thought this through, or is this latest invented enemy simply a xenophobic ill timed swipe at anything ‘anti American’? When your country’s economy is 70% reliant on consumerism and only twelve percent manufacturing perhaps you should tread carefully when condemning your biggest trading partner. Whilst the USA could (in theory) go all out ‘protectionist’ the result would surely be a net loss to the USA. U.S. lawmakers, with one eye on the 2012 elections, have stated that the undervaluing of China’s currency has cost American jobs and that a fairer exchange rate would help cut an annual trade gap of $250 billion. By how much it would cut the gap and how many jobs would be created remains unclear.
If the Chinese paid similar wages to their USA counterparts the price of the soon to be released iPhone 5 would double or triple and given that Apple is more solvent than the USA as a country…”sorry, what were you saying Senator?” Without wishing to be too facetious you have to wonder if the politicians ‘up on the hill’ have really done the math? How many input jobs are as a direct result of cheaper Chinese imports? Would inflation increase and unemployment rise if the Yuan was valued higher? Would the USA suddenly become an exporting powerhouse once again? Would the Chinese, Koreans, Australians and Japanese buy Jeeps and Cadillacs ahead of BMWs and Mercedes?
Foreign ministry spokesman Ma Zhaoxu said in a statement posted on China’s official government website (www.gov.cn) on Tuesday;
[quote]By using the excuse of a so-called ‘currency imbalance’, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-U.S. trade and economic relations. China expresses its adamant opposition to this.[/quote]
China’ Central Bank issue a statement;
[quote]The yuan bill passed by the U.S. senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China’s reform of its yuan exchange rate regime and may also lead to a trade war which we would not like to see.[/quote]
Ministry of Commerce spokesman Shen Danyang went one stage further by stating that the United States was trying to “pass on the blame for its own failings”. Ouch..
[quote]Trying to turn domestic disputes onto another country is both unfair and in violation of standard international rules, and China expresses its concern. It will weaken China-U.S. efforts to join hands and together promote global economic recovery. The global economic is in a complex, sensitive and changeable period, and so even more needs a stable international monetary environment.[/quote]
Wang Jun, a researcher at the China Centre for International Economic Exchanges.
[quote]Maybe the United States will not be the only and last country to do so. With the worsening of the European sovereign debt crisis, we must also be on high alert that euro zone countries could also press China on the exchange rate issue. We need to launch some pre-emptive measures to hit back against any more attacks.[/quote]
Perhaps we should be thankful that this story, which will be intensely magnified by the USA media over the next few months, has managed to displace the Eurozone crisis from the top of the finance news agenda. Perhaps history will be re-written to blame the current crises on the Chinese currency and HFT trading.
In Eurozone news Greek public sector workers have blocked the entrance to several ministries on Tuesday in order to protest against austerity measures disrupting talks with EU and IMF inspectors on the vital aid tranche. Athens has admitted that it will miss its 2011 deficit target despite a series of tax hikes, pension and wage cuts and a “labor reserve” plan to put tens of thousands of public sector workers in ‘hibernation’ redundancy. European governments are quietly suggesting that bondholders have to take bigger losses on Greek debt in the second aid package. European ministers have delayed a decision on the release of Greece’s next 8 billion-euro loan instalment until after Oct 13th. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year. Goldman Sachs Group has cut its global growth forecasts whilst predicting recessions in Germany and France.
Asian markets fell sharply in overnight early morning trade. The CSI fell 0.26%, the Hang Send closed down 3.4% and the Nikkei closed down 1.05%. the SPX future index is currently down circa 0.8% and the UK FTSE is currently down 2.14%. The FTSE is now down 11.06% year on year. The STOXX is down 3.02%, the CAC is down 3.04%, and the DAX is down 3.36%. The indecision by the troika will continue to impact as suspicions of a disorderly Greek default begin to gather pace. The euro reached a recent new low in overnight trade as it touched a ten year low versus the yen. Brent crude is down $87 a barrel and close to breaching $100 a barrel. Gold is up by $8 an ounce.
The main data realise this afternoon from the USA is the USA factory orders for August. This measures the value of new orders, shipments, unfilled orders and inventories reported by US manufacturers. Figures are reported in billions of dollars and also in percent change from the previous month. According to a Bloomberg survey of economists, a change of 0% is expected, compared with last month’s figure of +2.40.
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