Leaders of the western industrial nations and emerging economies are gathering together to participate in G20 summits for the first time in Asia to negotiate an agreeable global economic solution to prevent economic protectionism that satisfies both the developed western nations and the emerging economies.
Developed western economies with very low growth rate are facing the challenges of high unemployment and massive deficits. Emerging economies with high growth rate presently need western markets for their exports.
G20 Ministerial meeting couple of weeks ago has put trade imbalances and forex exchange rates on top of the agenda of the two days G20 head of states summit beginning tomorrow.
United States has been pushing China to quickly increase the value of yuan by 20-40% and to decrease the trade imbalance by 4%. China has refused US demand to drastically appreciate yuan by 20-40% calling it a “shock therapy” that will lead to social and economic unrest in the country.
Higher yuan and lower dollar can bridge the gap in trade imbalance between United States and China as it will enhance Chinese buyers’ purchasing power and make American products competitive.
The second round of United States policy of “quantitative easing” has intensified the currency row and it is criticized by Germany and China for weakening the value of dollar.
A weaker dollar to enhance U.S. exports will result in depreciation of forex reserves traditionally kept in dollars in all the countries, and it will also lower U.S. national debt.
Drop in the value of U.S. dollar will adversely affect China the most being the leading lender to United States and having US $2.65 trillion in forex reserve.
Japan and Brazil had intervened in forex markets earlier to limit the appreciation of their currencies.
China has refused to accede to pressures from western developed countries with dwindling economies especially from USA.
After G20 ministerial summit US treasury secretary visited China. British premiere David Cameroon visited China before heading for G20 head of states meeting. German finance minister visited China and criticized US tactics to bog down China. Germany is expecting to have $100 billion trade with China.
All the western countries are wooing China to partake in its massive and growing economy.
China is leading the emerging economies because they are facing the same economic challenges from within and from the western world as China.
The G20 summit is fraught with challenges for developed western countries and emerging economies. A positive outcome of the meeting is not expected and a negative conclusion can lead to further national economic protectionism.
On the eve of the summit, World Bank president Robert Zoellick said the largest economies “need pro-growth policies, structural reforms, open trade and an anti-protectionist agenda”.
Global economy is a fact and without cooperation every other way leads to loss for all the western economies and emerging economic nations including United States and China.
United States and China have to stand up to the global historic moment of shifting economic power from western developed nations to the massively populated nations with emerging economies and learn cooperation and co-existence. Paranoia will only lead to protectionism.
America has lost its financial canine teeth and China has newly acquired financial canine teeth. Both United States and China have to settle down from gnashing false teeth and grinding baby teeth, as it will hurt the newly lost teeth just as much as it will hurt the newly acquired baby teeth.
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