Will India Intervene in the Sino-U.S. Exchange Rate War?

Facing pressure from the United States, China has been defending the RMB exchange rate very firmly. So the U.S. has turned to allies — the European Union and Japan — for help, but they are taking an observer’s standpoint. After all, the trade deficit between the European Union, Japan, and China is not as serious as that of the U.S. Furthermore, the U.S. is pressing for the Yuan to appreciate against the U.S. dollar.

Therefore, the U.S. has set its sights on India.

According to media reports:

From April 5 to April 7, the U.S. Treasury Secretary [Tim Geithner] took a trip to India with the intention of “persuading” India into applying joint pressure on the RMB exchange rate.

Moreover, the U.S. think tanks have begun preparing public opinion: Washington think tank staffer Arvind Subramanian said, “There is one potentially big issue of common interest between the U.S. and India — the Chinese exchange rate.” The RMB is undervalued, and India’s economy far exceeds the U.S. economy. India will likely join the lobbying ranks, and in the G20 Summit, put pressure on China.

So, will India intervene with the Sino-U.S. exchange war?

There is great interest in India’s intervention, and together with the U.S., the possibility to put pressure on China is very slim. That is to say, during [Geithner’s] trip to India, it was hard to convince India onto the American’s side. The reason for this is simple: Putting pressure on the RMB is not consistent with India’s national interests.

If India openly supports the U.S. position on the RMB exchange rate at the G20 summit, it is confirmed that “India will be a tool for the United States to counterbalance China.” This will set China and neighboring countries on alert, and adversely affect India.

More importantly, if the Sino-U.S. exchange rate war intensifies, Americans will crack down on the export of Chinese goods to the U.S. marketplace. This leaves open the opportunity for India to snatch up what China has lost from the American market. At this point, how can India and the United States work together to appreciate the value of the RMB? As the Sino-U.S. exchange rate war heats up, India’s business world grows more exciting.

It is difficult to judge the impact of the RMB’s appreciation on India’s economy. With the current RMB exchange rate, India’s economic growth has been great for the last few years, but if the RMB appreciates drastically, the effect on India’s economy will be hard to predict. India is concerned, as the RMB exchange rate is likely hiding an enormous risk to India’s economic well-being.

As India develops as a country, concerning the RMB exchange rate issue, India should stand by the other developing countries like China. Only in this way can India safeguard the interests of developing countries.