Faultlines in global trading
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While protectionism is a threat, the world's trading system is also at risk from indiscriminate currency tweaking that endangers market stability.
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For more than a year emerging market economies (EMEs) have occupied the pride of place as the hub of world economic growth while America still sobs at the sink. To those living in East Asia, China and India, that may come as no surprise, given the problem-free, though protracted, recovery after September 2008. Investments are booming to the point where — in China, for instance — inflation is beginning to hurt. Given Ireland's messy economic situation, Europe's debt woes and the now-on-now-off start to recovery in the US, is the balance of economic power shifting away from London and New York to Mumbai or Shanghai?
It would be tempting to assume so; circumstantial evidence suggests EMEs have de-coupled from the developed markets so much that they influence the rate of global economic growth. But Dr. D. Subbarao, Governor of the Reserve Bank of India, warns against any tendency to downplay the importance of the US or Europe. For all their sluggish performance these past two years, for all the weak signs of recovery in the US, the cold reality is that the two blocs determine world trade as the biggest exporters and importers. This has been so since the end of the Second World War and continues to be the case now. The East Asian miracle and the Chinese export juggernaut, as well as exports from the other EMEs, worked in large part because the doors to the markets of the West were wide open and strong economic growth generated employment and consumer demand. But, as the RBI chief warns, danger lurks round the corner in the form of protectionism because recovery is dragging and employment stays flat; shutting the doors to imports would hurt the emerging economies because of the value of such trade in their GDP — a strong enough reason for China to be most reluctant to strengthen its currency. The EMEs, in other words, are not de-coupled and, by that token, their expansion is, at best, fragile. But there is another reason why it is tentative; the recent currency crisis exposes a major fault line in the global marketplace, with more countries wanting to export and therefore retain a competitive edge with weak currencies; not just China but almost every export-dependent country is fiddling with exchange rates to maintain their market shares and trade surpluses.
The world's trading system thus runs a risk of protectionism, to be sure, but also from indiscriminate currency tweaking that endangers the stability of the marketplace with a glut of exporters and few buyers. Problem is, the WTO and the IMF can do precious little.
http://twitter.com/umeshshanmugam
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While protectionism is a threat, the world's trading system is also at risk from indiscriminate currency tweaking that endangers market stability.
--------------------------------------------------------------------------------
For more than a year emerging market economies (EMEs) have occupied the pride of place as the hub of world economic growth while America still sobs at the sink. To those living in East Asia, China and India, that may come as no surprise, given the problem-free, though protracted, recovery after September 2008. Investments are booming to the point where — in China, for instance — inflation is beginning to hurt. Given Ireland's messy economic situation, Europe's debt woes and the now-on-now-off start to recovery in the US, is the balance of economic power shifting away from London and New York to Mumbai or Shanghai?
It would be tempting to assume so; circumstantial evidence suggests EMEs have de-coupled from the developed markets so much that they influence the rate of global economic growth. But Dr. D. Subbarao, Governor of the Reserve Bank of India, warns against any tendency to downplay the importance of the US or Europe. For all their sluggish performance these past two years, for all the weak signs of recovery in the US, the cold reality is that the two blocs determine world trade as the biggest exporters and importers. This has been so since the end of the Second World War and continues to be the case now. The East Asian miracle and the Chinese export juggernaut, as well as exports from the other EMEs, worked in large part because the doors to the markets of the West were wide open and strong economic growth generated employment and consumer demand. But, as the RBI chief warns, danger lurks round the corner in the form of protectionism because recovery is dragging and employment stays flat; shutting the doors to imports would hurt the emerging economies because of the value of such trade in their GDP — a strong enough reason for China to be most reluctant to strengthen its currency. The EMEs, in other words, are not de-coupled and, by that token, their expansion is, at best, fragile. But there is another reason why it is tentative; the recent currency crisis exposes a major fault line in the global marketplace, with more countries wanting to export and therefore retain a competitive edge with weak currencies; not just China but almost every export-dependent country is fiddling with exchange rates to maintain their market shares and trade surpluses.
The world's trading system thus runs a risk of protectionism, to be sure, but also from indiscriminate currency tweaking that endangers the stability of the marketplace with a glut of exporters and few buyers. Problem is, the WTO and the IMF can do precious little.
http://twitter.com/umeshshanmugam
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