Volume.1.02 (2010, Week 10)

Obama urges China to adopt more market-oriented currency market and China rejects it (once again)
So called G-2 keeps disagreeing

This week the-same-old-argument came up once again, US calling for the devaluation of yuan (or renminbi, RMB) and China accusing US that US wants to solve its problem using China. On the face of it, yes, it looks like so, as the US trade deficit with China has been increasing steadily, from $68.7bn in 1999 to $266.3bn in 2008 (that's more than the entire GDP of Portugal or UAE, which consists of Adu Dhabi, Dubai and 5 more emirates).

Today, China is not going to do what US wants them to do, or what EU or any other country and group of nations for that matter, wants them to do. China wants to be recognised as a super-power on its own, so why should it be listening to others and meeting their demands? China will devalue its currency at its own pace, as it sees fit. US calling for devaluation of yuan is only going to slow down the devaluation process, as China does not want to be seen as meeting US demand. So, it is best that topic of yuan and its devaluation to be left out of their conversation, if US wants to narrow its trade deficit.

However, the problem of US and other nations with big trade deficit maybe internal rather than external. For example, UK's trade deficit has risen in January 2010 to £3.8bn from £2.6bn in December last year despite a weaker pound, with trade deficit in physical goods increasing to £7.9bn, which is almost a billion higher than the the expected £7bn.