The U.S. and China Collide

For several months now, in particular over the last few days, our focus has been fixed on Greece and Europe to such an extent that a major turning point in world economic relations has almost escaped our attention. Barack Obama is faced with an economic situation that is so disastrous, he no longer has any option but to finally tackle the real issues — issues his predecessors have also regularly chose to suppress.

As we approach the presidential elections, the government will also have to find the culprits. There is Wall Street, of course, an easy target that merits an attack. Obama should bring Wall Street to its knees; after all, it’s Wall Street that had him under its thumb. However, “outraged” Americans may well be open to renegotiation. Second to Wall Street, the other ideal culprit is China.

And that is the big change in recent days. The U.S. administration has finally decided to tackle the problem of the chronic undervaluation of the Chinese currency, the yuan. This undervaluation is a main factor of responsibility for the economic and social crisis in which we are living, and has caused trade imbalances and the monstrous balance of payments that inflicts us. Nobody forced Europe and the U.S. to transfer their industrial production to China nor to over-consume Chinese products; however, nothing would have been produced under the same conditions had China valued her currency at its true value and respected the rules of international trade. Let us move on; that is the past. History cannot be rewritten. Nonetheless, the Americans believe that they can influence the future.

Have they been encouraged by the first sign of weak growth in China or by the critical employment situation in the U.S.? It is probably a combination of the two. But the time has come. No more beating about the bush or playing with words. The word “manipulation” of exchange has entered Congress through the front door. It is a word laden with consequences, because whoever speaks of manipulating exchanges means imposing custom duties on Chinese products. That goes without saying. The Senate has got the ball rolling and the House of Representatives must decide if it will follow suit. But what is surprising is that the chairman of the Federal Reserve himself, Ben Bernanke, who rarely passes comment on the issue, violently rammed the point home. He has accused China of undermining any rebound in world growth by keeping its currency artificially low.

The Chinese have responded, as they do, by complaining of an American lack of respect for the rules of free trade, thus finally demonstrating their extreme sense of humor. But China and the U.S. have reached a point — though it cannot be called a breaking point, as it is impossible for two interdependent countries to become severed. It is, however, a point of major conflict. Europe should take the opportunity to add its voice to that of the U.S.

The current crisis has an important advantage: It forces politicians to tackle real problems. In every country. Let us hope that China gets the message.