News&Views Feb 2010 Economics/Politics USA- China
News&Views Feb 2010
Economics/Politics - USA
China Rejects USA Complaints on Its currency
(see link below from NY times)
Are decision makers in
USA finally waking up and getting courage to face reality? Signs are
still not clear. President Obama has made a statement “to
make sure our goods are not artificially inflated in price and
their goods are not artificially deflated in price; that puts us at a
huge competitive disadvantage.”
According to WTO agreements a country
has to provide essentially similar subsidies for manufacturing trading
etc. falling under WTO, to its own organizations or foreign
organizations. China has kept its foreign exchange rate practically
constant against US dollar for years, while its currency should
surely have much better rate according to any reasonable
calculations. It should perhaps be at least 40% more. Thus essentially
China is subsidizing its own manufacturers to the extent of 40%.
But
rulers in USA and Western European countries do not seem to have will
to handle this properly. They fear it may cause a big inflation. As far
as I see effects of such a change will be felt much less for average
person in USA and some countries in Europe, simply because percentage
of household income spent on goods or food items spent in USA is
perhaps not more than 15-20%. But it may affect big organizations of
USA, who have invested a lot in China to create their manufacturing etc.
In fact they must also be with USA government in evading this issue.
Fear among USA elites and rulers is so much that they do not even
want
to utter word China about this practice alone. They talk in
generalities, as Obama
has done in the current statement. Generally they unnecessarily try to
hyphenate China
with India, when they have to talk about these issues. While by no
means
situation in India or other countries is similar. Percentage of
exports from India to USA is negligible for USA. So is the case about
job-losses due to such exports. Unlike China, over all drive for
Indian economy being a bit better now is mainly because of
internal demands generated in India. Indian currency is also more
attached to a basket of currencies. India also has adopted a path to
make its currency free and open one in a few years. Workers who account
for exports to USA, in India are mainly from IT or auto part sectors
who have salaries among highest in India. While I am not happy about
American rulers bringing India unnecessarily to avoid their fear of
China, I feel India should any way take further steps on its own to
decrease any effect of currency manipulations in its own manufacturing
or trading to a minimal level. I also feel that by now China is strong
enough to take up a similar path. In some ways it has already achieved
a lot more than India. It can also reform its system to make sure that
it is not at the expense of others.
It is true that both China and India have a large population and a
large
work force of well educated people. At the same time current level of
their economy does not provide enough for such a work force to have a
minimal living standard. This will continue to give them advantage of
more human
competition and a population ready to work harder for less money at
least for a few years. That part should surely be counted time being
while
calculating foreign exchange rates etc. USA and European countries
should ensure that they do not ask for distroying this advantage.
Current PP index which measures
such aspects is not a very proper index.How ever it can be made a more
reasonable one and calculations based on such indexes should be used to
arrive at a reasonable mechanism to fix up foreign exchange rates. This should be made a part of WTO
calculations under current agreements itself.
However time being India is too poor, very marginal and not well
organized to influence such decisions. It should not even try. It
should only concentrate on improving standard of life of its own
working people. I think average people as well as rulers and decision
makers in India realize this and wish that India does not fall into any
power game and just concentrates on this improving life style task.
As far as I see China should also have more or less the same path to
follow for some time. But you hear very harsh statements from Chinese
ruling class often which sort of creates an intimidation "Oh! It wants
to run towards becoming a global power" etc. I hope this is not the
feeling of average person. I wonder what do average middle class people
in China feel?
It is really for Americans to take a lead in these issues, unless China itself changes its attitude. But they
seem to be lost in their own quagmires with China. Their own
wealth is getting reduced because they have replaced a lot of their own
manufacturing and servicing by just financial games. Then they see no
options but not to talk directly about China but hyphenate it with
India or others.
Even on dealing with terrorism they seem to be lost in
a similar quagmire. It is quite clear by now that the top army rulers
and
elites of Pakistan and Saudi Aarbia are quite involved in encouraging
spread of such activities. They and similar other groups must be the
ones who have hold over groups like Taleban or Al Qeda. But instead
of confronting them, time being Americans seem to see that only option
for them to
support these ruling classes by arms, ammunition and financially,
since they (Americans) are lost
in fighting foot soldiers of these violent elites. Again they find it much easier to
evade
actual issues and hyphenate India with Pakistan. They declare every
alternate day that since Pak rulers and army consider India as their
security problem, India should address problems of these rulers.
Let us see whether Obama Administration can come out of these useless
games and takes some steps bringing some long and short term real
changes leading to better economic and security conditions for its own
people and others.
China
Rejects American complaints
