Respect for core interests the key issue at S&ED
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This data evidently shows that China's trade surplus, which has shrunk hugely, is not the cause of the US trade deficit. But despite this, in the earlier part of this year the US was unwisely pressurizing China to sharply increase the exchange rate of the RMB.
Numerous analysts, including this column, have shown that RMB revaluation would factually not have reduced China's trade surplus at all – on the contrary in the short term it would have increased it. The reason that various circles in the US promoted RMB revaluation is not because it would aid the US balance of trade but because it was hoped it would slow China's economic growth – as occurred with Japan in the 1980s when rapid revaluation of the yen did not lead to a shrinking of Japan's trade surplus but it did lead to dramatic slowing of Japan's economy.
However at this week's Economic and Strategic Dialogue US Treasury Secretary Geithner sensibly acknowledged that China had succeeded in hugely reducing its trade surplus. US pressure for large or very early increases in the RMB exchange rate was muted. The US appears to be preparing the mutually beneficial course of freeing up its high technology exports to China. This will aid both US exporters and China's economy – and enable it to buy more US products.
This way of tackling the issue is important as it illustrates a final question of "core interests" which is well illustrated by a Russian story from the Soviet era. This ran: "Question: What is the difference between an American farmer and a Soviet farmer?
"Answer: There are two American farmers. One is very successful, saves money, goes to night school to study farm management, and is able to buy a horse. His neighbor is very jealous. So he works harder, goes to night school to improve his farm management, saves and is also able to buy a horse.
"In the Soviet case a farmer buys a horse. His neighbor is very jealous, becomes deeply depressed, stays at home and spends all his time plotting how to kill his neighbor's horse."
Every government in the world has not only the right but they duty to strive to improve the life of its citizens. Insofar as the US government seeks to speed up the rate of growth of its own economy through measures such as increasing investment and saving money through health care reform, that is not an affair of China or any other country. Insofar as the US seeks to slow down another country's economy, for example by forcing it into excessive currency revaluations, that will inevitably be rejected.
Respect for core interests means seeking to improve one's own country, not seeking to damage another.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/node_7080931.htm
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