Tuesday, January 27, 2009

US-China: Protectionism/Trade War?

David Kotok, Chairman & Chief Investment Officer of Cumberland Advisors writes on the potential trade war and protectionism between the US and China. In the 1930s the severe recession of 1929-1931 was turned into the depression of 1931-1933 because of protectionism. Could history now repeat?

David writes that in the confirmation of Tim Geithner as US Treasury Secretary, Tim was questioned twice about currencies and China - and on both times answered: “President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices.” Could this answer be a prepared answer, citing President Obama twice?... China’s response was fast and direct - China’s commerce ministry said in Beijing that China “has never used so-called currency manipulation to gain benefits in its international trade. Directing unsubstantiated criticism at China on the exchange-rate issue will only help US protectionism and will not help towards a real solution to the issue.”

Keep in mind that it has been China and many of the Asian countries that have funded the large and continually growing US deficits and US debt markets... click on pie chart above to see China's holdings relative to other countries...

  1. link to David's article: http://www.cumber.com/commentary.aspx?file=012409.asp&n=l_mc
  2. table showing China's vast holdings of US Treasuries: http://www.treas.gov/tic/mfh.txt
  3. pie chart above courtesy of http://en.wikipedia.org/wiki/United_States_public_debt

1 comment:

Anonymous said...

Dear Reader,
I recently wrote a scholarly article on this topic, which is to be published in March. The article approaches China’s policies from a different perspective - framing it around historic stigmatization of miserliness and usury. The article can be downloaded from here http://ssrn.com/abstract=1332842
Please contact me at the website with any comments or feedback.