India refuses to side with US on trade imbalances

[Water Car Engineer]

As a rancorous debate over economic imbalances and currency valuations clouds the G20 summit here, India has refused to side with the United States, which believes that cutting trade surpluses by countries like China is the solution.

In bilateral meetings with UK Prime Minister James Cameron and Mexican President Felipe Calderon, Prime Minister Manmohan Singh said that there was no agreed universal diagnosis to what was ailing the global economy. Disclosing this to the Indian journalists here for the summit, a spokesperson for the external affairs ministry refused to be drawn into its implications, saying the interpretation was left to the journalists.

According to reports, US President Barack Obama and his Chinese counterpart Hu Jintao spent "the bulk" of an 80-minute meeting here discussing exchange rates.

China’s record $28 billion trade surplus with the US in August heightened criticism that its government maintained an unfair cap on the yuan’s appreciation to the detriment of US businesses. Obama, who has pledged to double exports in five years, wants to broaden the currency debate by linking it to current account imbalances.

Germany and several other nations have hit out at the US plan to consider limiting current account imbalances.

India, on the other hand, finds itself in a uniquely happy situation and may rightly want status quo to continue. It has a trade deficit with China. A revaluation of the yuan upwards will only increase this deficit. Secondly, many Indian companies buy equipment and machinery — telecom, power — from China. A lowly-valued yuan works in their favour. The rupee’s rise, meanwhile, remains in check because the country has a current account deficit exceeding 3 per cent of the gross domestic product.

A meeting of finance ministers and central bankers last month agreed to move toward "more market-determined exchange rate systems" and make efforts on "reducing excessive imbalances". A week later, the US Federal Reserve said it would buy $600 billion in Treasury bonds over the next few months to shore up the economy. Brazil, Germany and China said the move would drive down the dollar and fuel speculative flows of capital that risk asset bubbles.

India refuses to side with US on trade imbalances

 

[Ras]

It does not matter what the others think...the US is getting screwed by the Chinese refusing to raise their currency. I for one support this..2 people can play this game of currency manipulation.

 

[true_indian]

^^ Also I thought Manmohan sided with FEDS and said India is okay with US pumping extra $600 billion into economy. Was it not siding with US on trade imbalances..I am confused..

 

[PakSher]

India and China have been having trade surpluses with the US and making money. The USA is just asking for a fair trade both ways.

Indians do get thousands of visas to come here, but India says India is not stealing US jobs. India has to come thru with the US on fair trade, so far it only has been free trade by the US for the rest of the world, but the rest of the world also needs to do the same.

 

[Chinese-Dragon]

Brazil, Germany and China said the move would drive down the dollar and fuel speculative flows of capital that risk asset bubbles.

So the US is now devaluing their currency with the QE2 initiative.

At least they will no longer be able to moan at China/Switzerland/Japan over devalued currencies etc.

 

[Bang Galore]

India and China have been having trade surpluses with the US and making money. The USA is just asking for a fair trade both ways.

Indians do get thousands of visas to come here, but India says India is not stealing US jobs. India has to come thru with the US on fair trade, so far it only has been free trade by the US for the rest of the world, but the rest of the world also needs to do the same.

Factually incorrect. India & the US have a fairly balanced trade relationship as opposed to the one the US has with China. In the near term considering the deals signed/to be signed, it's conceivable that the US will have more exports to India than the other way around.

 

[Ras]

So the US is now devaluing their currency with the QE2 initiative.

At least they will no longer be able to moan at China/Switzerland/Japan over devalued currencies etc.

Actually the Federal Reserve is sick of the moaning and nothing happening due to it....if it is a currency war some countries want then bring it on.

 

[PakSher]

One thing to remember is that US is China's biggest trading partner but if the US economy goes belly up, China will have a huge economic down turn not to mention a risk to China's US Debt holdings. Though with China making strong economic gains, its currency is due for appreciation. China's currency value is still at the exchange rate of the 90s that is 2 decades ago.

If you disagree please provide valid reason. This is Pakistani forum and you have a right to express your opinion. This thread is in context to trade by China as a country and its people are great.

 

[pmukherjee]

One thing to remember is that US is China's biggest trading partner but if the US economy goes belly up, China will have a huge economic down turn not to mention a risk to China's US Debt holdings. Though with China making strong economic gains, its currency is due for appreciation. China's currency value is still at the exchange rate of the 90s that is 2 decades ago.

If you disagree please provide valid reason. This is Pakistani forum and you have a right to express your opinion. This thread is in context to trade by China as a country and its people are great.

Yes, China's currency is greatly devalued, it does not in anyway reflect the actual situation as dictated by market forces. The Americans do have a point in what they have been saying for sometime now. However, India should do only what works in India's favour. MMS knows much more about economics than I do and I for one have full faith in him. He will not accept any proposal which hurts India.

 

[Chinese-Dragon]

Actually the Federal Reserve is sick of the moaning and nothing happening due to it....if it is a currency war some countries want then bring it on.

I don't think the USA is in the economic position to start a trade/currency war at the moment.

It's the USA that is at risk of a double-dip recession. We are not.

 

[Vimana1]

G20 will be intresting to see what happens on the trade front, but the ball is in China's court.

 

[Chinese-Dragon]

G20 will be intresting to see what happens on the trade front, but the ball is in China's court.

China's position will be the same. The currency will be revalued upwards, and it will be done SLOWLY... to avoid any "shocks" to our industries.

Revaluing the Yuan upwards is in the long-term interest of China too, it will help to boost the domestic market, and provide security against future economic upheavals.

The point is it will be done very slowly. I know Obama wants results "right now"... but it's more important to keep our economy stable. The CCP represents the interests of China first. Obama can wait.

 

[Vimana1]

China's position will be the same, the currency will be revalued upwards, and it will be done SLOWLY... to avoid any "shocks" to our industries.

Revaluing the Yuan upwards is in the long-term interest of China too, it will help to boost the domestic market, and provide security against future economic upheavals.

The point is it will be done very slowly. I know Obama wants results "right now"... but it's more important to keep our economy stable. The CCP represents China, not Obama.

It will also make your oil imports cheaper but there is all this talk of a 'trade war' looming



.S.-China trade wars
By Armstrong Williams - 11/11/10 07:17 AM ET

A trade war with China is almost inevitable. We see the opening salvos already. China’s recent announcement that it will restrict rare-earth mineral exports is basically a move against Japan, a U.S. ally in the G-20 coalition of industrial economies. The Chinese premier is going around embracing the Greek government, offering to buy worthless Greek bonds — again to try to weaken the U.S. coalition within the G-20. In a further saber-rattling maneuver, China banned imports of chicken feet from the U.S. — a food considered a delicacy in China, but a useless byproduct of poultry production in the U.S.

For its part, the U.S. has signaled that it is willing to do whatever it takes to cheapen the value of the U.S. dollar. The Federal Reserve has significantly increased its production of money in the past two years. As a result, the purchasing power of the U.S. dollar has plummeted versus other world currencies. The value of all the Treasury bonds the Chinese purchased has similarly plummeted. The Chinese government grumbled early this year — encouraging the U.S. to be a more responsible debtor. The West countered by awarding the Nobel Peace Prize to a jailed Chinese dissident.

Neither side wants to resort to the nuclear option — outright trade restrictions. Banning Chinese imports would have immediate and drastic effects on the Chinese economy. Factories would close. Millions of people would become instantly unemployed. And a rapidly developing Chinese consumer base would essentially disappear overnight.

U.S.-China trade wars - The Hill's Pundits Blog



Came across this article just now

 

[Chinese-Dragon]

It will also make your oil imports cheaper but there is all this talk of a 'trade war' looming

Interesting blog. Anyway, others can declare trade wars if they wish. As I said before, it's the USA that is at risk of a double-dip recession, not China.

Here is the problem:

Obama wants results NOW. Why? Because he just suffered a humiliating defeat in the November elections. The electorate sent a clear message to the White house... that they are not happy. He needs something, anything, to increase his political capital.

China wants to revalue the Yuan upwards, slowly. Why? Because the stability of our economy is paramount, and revaluing the Yuan upwards too fast, could cause a disaster. Our industries need time to adjust to the new exchange rate.

So no, China is not going to speed up the process, just to give Obama a quick boost of political capital, so he can ward off the stinging defeat he just suffered in the elections. Obama can just sit on his hands and wait, for as long as it takes.

 

[Vimana1]

I see the whole global financial crisis was in part due to over spending by the west for decades, instead of boosting it's economy USA spent over $1 trillion in Iraq and Afganistan wars. It still maintains a $680 bn annual defence budget even with it's current trade deficit, Obama could not have chosen a worse time to be president.