Tension Over Trade Imbalances Heating Up


As reported in the above-linked CNBC article, tensions over trade imbalances are heating up, not just in China, as head-lined in the article, but in Japan and Germany as well.  It seems that the U.S. has proposed that other nations “cap” their current account surpluses (trade surpluses) at 4% of GDP:

The United States proposed at the G20 finance ministers’ meeting last month that countries should cap current account surpluses or deficits at 4 percent of GDP as part of efforts to rebalance the global economy.

It was one thing for Obama to suggest at the height of the global economic crisis that nations voluntarily work together toward rebalancing the global economy.  All agreed, knowing full well that there would be no follow-through by the U.S. and they could return to business as usual.  But it’s an entirely different matter for the U.S. to begin insisting on quotas. 

China on Friday pushed back strongly against U.S. policies ahead of the G20 summit, ridiculing Washington’s plan to impose current account targets and warning of risks in the Fed’s monetary easing.

… The idea of numeric targeting met strong resistance from Japan and Germany …

U.S. patience with huge trade imbalances is wearing thin.  Now, even the Fed has joined the fight with its new round of quantitative easing.  If voluntary approaches and pressure on currency valuations don’t work, then the unavoidable question for the U.S. is “what do we do next?”  There are only a couple of options – the ones I’ve steadfastly maintained are the only viable options:  U.S.-imposed quotas and tariffs. 

Forget all the post-election banter about “Obamacare” and about government spending.  It’s all dwarfed in significance by this escalating global war for employment.  The global trade regime set up in the wake of World War II in the hopes of preventing the next war has back-fired and is crumbling, and may very well have provided the catalyst for the next one.

4 Responses to Tension Over Trade Imbalances Heating Up

  1. hungry4food says:

    Pete I agree the Fact that we have Not been forth coming years ago when the gaps in trade accounts were allowed to go on and on with no counter measures is the war within the coming one , QE2 is being sucked over to the developing nations that have been manipulating the currency curve to facilitate this and so the USA will as you point out see no benefit to this additional debt accumulation . The dollar crash will be hyper inflation as the shrinking access to supply becomes our war of attrition with the lack of supply-side expansion in the USA and the continuation of dollar value decline as we print more dollars to bridge the deficit gap forcing less and less supply to be accessed with this devaluation process .

  2. hungry4food says:

    If QE2 only flows over seas to countries that have trade surpluses with the USA , this begs the Question shouldn’t they be paying high interest rates on that capital to the USA ????

    • Pete Murphy says:

      A little out of my field, Hungry, but I believe that they do pay fairly high interest rates – one of the reason that all of the investment money is going over there.

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