Saturday 21 Jul 2018 | 16:20 | SYDNEY
Saturday 21 Jul 2018 | 16:20 | SYDNEY

China-US trade: Why I'm not reassured


Malcolm Cook

2 December 2008 16:04

Recently, we in Australia have been reassured that the Obama Administration will likely not 'bash' China on trade and exchange rate issues, despite the severe economic pain the US is facing and Democrats’ protectionist demons. Our own Michael Fullilove argues this case, as does the US Studies Centre’s Geoff Garrett.

I hope these two experts on the US are right, but I wonder if the present crisis will not further aggravate US-China trade tensions and make US 'aggressive unilateralism' against China’s gargantuan trade surplus more likely. I'm sure Japanese and Korean trade negotiators (and auto executives) of a generation ago still have some battle scars they can show the Chinese when it comes to exchange rates, trade surpluses and US economic downturns.

The roots of my worry come from the fact that exchange rates are not moving as many would expect during this crisis. Not only is the US dollar not depreciating as one would expect for the currency at the centre of the crisis (remember the Thai baht in 1997-1998), it is appreciating. The US will find it very difficult to export itself out of its doldrums. Imports, including Korean cars, are becoming more, not less, attractive.

At the same time, China’s exporters are getting hammered by lower demand, sparking concerns in Beijing about political stability. In response, China’s central bank is letting the yuan gradually depreciate against the greenback. Exchange rate movements have been at the centre of US trade tensions in East Asia. It looks like the global financial crisis will likely make this more the case, just in time for the Democrats to take power.