Posts Tagged ‘client states’

Dollar-Yuan – When the dust settles

April 18, 2010 1 comment

The Dollar-Yuan spat between US and China is actually a 60 year old US foreign-policy mechanism – which 2ndlook has termed as USCAP – US-Client-Acquisition-Program.

Originally published on Wednesday, May 09, 2001 - Cartoon David Horsey - Seattle-PI

Originally published on Wednesday, May 09, 2001 - Cartoon David Horsey; Seattle PI

EU’s trade deficit

The interesting point is how EU manages its trade deficit – without blaming China-Yuan. EU-zone countries like Greece, Ireland, Italy, Portugal, Spain, are on the verge of a sovereign default. Euro-zone is upto its gills in debt. The Euro is being called names. And EU is not snivelling about the yuan and China?

Very un-European!


USA, EU Trade Balance with Oil Producers (Graphic source and courtesy - Click for larger image.

USA, EU Trade Balance with Oil Producers (Graphic source and courtesy - Click for larger image.

Europe is at the forefront seeing dangers, damage, affronts, threats, effects, fall-outs et al. The whole she-bang! But in case of China and Yuan, Europe is not doing much of crying about the ‘undervalued’ Yuan. The Euro revaluation is a recent affair. So, not of much consequence. The Yuan undervaluation has been on the US agenda for a few years now – with varying intensities. Euro-trade balance with China is slightly in China’s favour. All in all, good management by the Euro-zone, it appears.

Which in the current scenario is the one-bright-spot on the Euro-horizon!

Good for them.

The US Treasury has been charged by Congress to assess whether China is a ‘currency manipulator’  … the very concept of currency manipulation is flawed: all governments take actions that directly or indirectly affect the exchange rate. Reckless budget deficits can lead to a weak currency ; so can low interest rates. Until the recent crisis in Greece, the US benefited from a weak dollar-euro exchange rate. Should Europeans have accused the US of ‘manipulating’ the exchange rate to expand exports at its expense?

Although US politicians focus on the bilateral trade deficit with China — which is persistently large — what matters is the multilateral balance. When demands for China to adjust its exchange rate began during George W Bush’s administration, its multilateral trade surplus was small. More recently, however, China has been running a large multilateral surplus as well.

Saudi Arabia also has a bilateral and multilateral surplus: Americans want its oil, and Saudis want fewer US products . Even in absolute value, Saudi Arabia’s multilateral merchandise surplus of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of GDP, is more than twice that of China. Saudi Arabia’s surplus would be far higher were it not for US armaments exports.

In a global economy with deficient aggregate demand, current-account surpluses are a problem. But China’s current-account surplus is actually less than the combined figure for Japan and Germany; as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.

Adjustment in the exchange rate is likely to shift to where the US buys its textiles and apparel: from Bangladesh or Sri Lanka, rather than China . Meanwhile, a rise in the exchange rate is likely to contribute to inequality in China, as its poor farmers face increasing competition from the US’ highly subsidised farms. This is the real trade distortion in the global economy, one in which millions of poor people in developing countries are hurt as the US helps some of the world’s richest farmers.

Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution … Unfortunately, this global crisis was made in the US, and the country must look inward … (via No time for trade war between US and China: Joseph E Stiglitz-International Business-News-The Economic Times).

View from Lanka (Image source and courtesy - Click for larger image.

View from Lanka (Image source and courtesy - Click for larger image.

US trade deficit

Stiglitz, in the post linked above,  does a good job in demolishing American propaganda against the Chinese yuan. He shows how while there is case for yuan revaluation, the logic is not what the Americans are giving.

To de-fang American pressure, China recently reported a trade deficit. Much like Europe, Japan, Asian Tigers had to recalibrate their currencies, China too will have to do it. Dollar gyrations are sinking many smaller economies – like the cartoon above from Sri Lanka represents.

The mystery of the forex basket

Increasing the share of Euro in global forex reserves is a long-term EU objective. Is this European quiet related to:-

1. Keeping China happy,
2. Pushing the Euro proposition to the Chinese
3. Increasing the share of Euro in China’s reserves basket.
4. All at the dollar’s expense.
5. After all, who would like to turn away a creditor who is happy with low-to-zero interest with an excess of US$2.5 trillion sloshing around.
6. This US$2.5 trillion can turn Euro-fortunes!


Cartoon from Korea Times - Mad Pakistani Tiger eating itself!

Mad Pakistani Tiger eating itself! (Cartoon from Korea Times).

The US has successfully executed US-Client-Acquisition-Programme (USCAP) – a most out-sized ‘conquest’ in history. By using economic levers, it has successfully created client-states across Europe, SE Asia, Japan, China, etc. Some economies have taken the bait, used US incentives and become ‘successful’ client states.

What is most intriguing is Stiglitz’s choice for US largesse – after China. Sri Lanka or Bangladesh, he says. With Pakistan, Sri Lanka and Bangladesh as US clients, India’s may see itself encircled by Anglo-Saxon client states.

A declining West, riding away into the sunset, somehow seems unreal to me.

China and U.S. soften tone on yuan

The poor will pay a price ... as usual.

The poor will pay a price ... as usual.

Amid harsh rhetoric, Chinese Vice Commerce Minister Zhong Shan and U.S. Treasury Secretary Timothy Geithner sounded some conciliatory notes on Wednesday.Mr. Zhong, making a 30-hour visit to the U.S. to try to ease bilateral tensions, expressed confidence that politicians from the two countries “have the wisdom and ability to resolve existing problems.“Mr. Geithner said he be- lieved China would allow its currency to appreciate over time, according to a CNN interview transcript. While the U.S. “can’t force them to make that change…I think we can work through the tough things we have together,“ Mr. Geithner said.The stakes are high for both sides. The U.S. and China are among each other’s biggest trading partners, and numerous U.S. companies have investments in China. The U.S. is increasingly looking to China to cooperate on international strategic issues, such as nuclear nonproliferation and the fight against terrorism. (via WSJ ON YUAN – China and U.S. soften tone on yuan).

Let the games begin!

Rousing 'macho' WASP voters!

Rousing 'macho' WASP voters!

The Dragon and the Eagle are squaring off! An experienced US stalks China, waiting behind high walls of US$2500 billion foreign exchange reserves.

The US-China game has started in earnest. US, egged on by ‘macho’ voters and a cheering media, will:-

  1. Act tough
  2. Behave in a morally outraged and indignant manner
  3. Commentators will prescribe a trade war and sanctions

In parallel, analysts, academics, think-tanks, journalists will talk-up China. Like Greenspan talking-up the US dollar or Dow Jones. They will: –

  1. Hold up China an nation-exemplar
  2. Write books analysing on China. Such books will start pour out of our ears
  3. Make movies and novels about the ‘dominant’ Chinese in the US
  4. Study, extol Chinese culture /tradition /history, and hold forth as a shining example.

And China will be ‘uncompromising’! Act as though, they have a choice.

A certainty

The change in dollar-yuan exchange ratio will happen. Peacefully, or with violent side shows. Assuming that the dollar-yuan revaluation will happen smoothly, is fraught with risk. That it will happen, without any significant disruption, is one, big, huge, slippery assumption. What will follow the Chinese moment in the sun?

Economic mayhem?

What remains to be seen

What could set off economic mayhem in China? Crime in China (a simmering threat), terrorism in Xinjiang (remote possibility), real estate bubble (a real scenario)?

Will the Chinese Government be able to ride this storm? Without a war with India? Which side of the fence will China fall? Answers to these questions will be worth waiting for! And prepared with!

Last time …

It would do well to remember that last time when China had a problem, it resulted in the India China War of 1962. Just after the disastrous Great Leap Forward and before the equally disastrous Cultural Revolution.

The Great Leap Forward began in 1957-58, saw famine and hunger across China. After the Communist takeover of China, land seized from land owners, was given to peasants in 1949. Ten years later, in 1959, the Chinese State took away the same land from the same peasant. Food shortages, starvation followed. Western (questionable) estimates are that 30 million people died during this period. War with India followed in 1962 – a diversion from the domestic Chinese catastrophe.

What will it be this time?

Lee Kuan Yew On Chinese ‘superiority’

October 12, 2008 2 comments
Lee Kuan Yew - A modern follower of the Confucius

Lee Kuan Yew - A modern follower of the Confucius

To begin with we don’t have the ingredients of a nation, the elementary factors, a homogenous population, common language, common culture and common destiny. (via We saw Sri Lanka: Lee Kwan Yew says it again).

How tough it must have been

He is talking about the difficulty of ‘creating’ the nation-state of Singapore – with a population of 45 lakhs (4.5 million). To put that in perspective, that is little less than twice the population of AIDS-affected in India. And to think that India believes that the success of Singapore has any lessons.

Confucius - The Chinese Government loves him!

Confucius - The Chinese Government loves him!

Lee Kuan Yew, who is sure that India will never grow beyond 60%-70% of China and how the Confucian ethic is superior.

Platonic-Confucian axis

The axis of Confucian-Platonic authoritarian, ‘wise’ rulers was the overwhelming model for the world. Property rights remained with less than o.1% of the people. Under the CRER principle, (cuius regio, eius religio, meaning whose land, his religion; CRER) even the personal and private aspects of a person, like religious beliefs of the individual, were subject to State approval.

One thing, Mr.Lee, why don’t you ever talk about how beneficial it was for you (meaning Singapore, since  your family practically owns and runs Singapore) to become a client state of the US. That is the one lesson that Singapore can teach, Mr.Lee.

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