America is unable to cut the budget & trade deficits, while China is unwilling to revalue its currency as it would make its products more expensive when exported. The impasse has led to behind the scene maneuverings to get their points heard loud & clear, especially by the US giving a feeling that they are not defending the dollar. It is on slide downhill, sending tremors around the world; as most international trade is denominated in dollars. Whether it is a deliberate policy, or left with no other alternative, is a moot point for others; but it affects them all the same. China maintains that America has to fix its problems rather than blame them. It is becoming clear, free trade has boomeranged on the countries which pioneered the idea and sold it to the reluctant, including China, which is now the biggest beneficiary by amassing foreign reserves of over two and a half trillion dollars, leaving others behind; a runaway success!
There are crucial issues that concern even the man in the street, anywhere! How is the US going to repay its debt when it is still ballooning, despite all attempts to reverse the tide? This is like cancer spreading, despite the powerful drugs administered! What is the future of the US dollar, as international trade is mostly denominated in the dollar? What future for world trade and currency convertibility, if dollar weakens greatly?
Normally, the strength of any currency reflects that of the country. In this case, America wants China to revalue its currency by at least 20%, meaning there is clearly a shift in the power equation! China feels that it will be undone by this up-valuation, as the resultant unemployment will implode on their prosperity & stability. The world is effectively on a bear-hug and even riding the tiger! If US maintains the imports & China the exports, it would be clearly unsustainable!
From a commonsense point of view, America can reduce the trade deficit & generate massive employment by switching to clean energy from wind, solar etc., it has the capacity to become energy self-sufficient; and many birds with this master bullet! Apart from the benefits of doing away with polluting oil & coal, the foreign exchange saved, the employment generated, and the umbilical cord of foreign policy tied to oil dependency will be cut! Is domestic politics a gridlock in moving forward? And that too on an issue that impacts vital national security & even that of the world. In a way the threat of polar ice caps melting looks distant in the wake of the US dollar preceding them, which looks more threatening!
Yes, China has stolen a clear march ahead with the massive energy unleashed after being locked-up in the wasted years of Mao! But let us not be taken-in that just stopping the exports from China can solve the problem; as imported goods from any other source or produced domestically will cost more & much has still to be imported from China. Also, they will be able to bid for even family jewels of the developed countries with their revalued currency & massive reserves! Maybe they can even pay up millions for each resident visa in America, generating enough to wipe-off the deficits at one go and boost the housing market!
The possibilities are endless with each bringing also problems along! The world is really spinning faster, as also our minds, to comprehend the myriad problems! There are many brilliant analysts, but the action to shake things-up is stuck in the back-burner. Only cooler heads, without pointing fingers at others and with a single-minded vision to solve the issues, can help. Ruffling the feathers to get political mileage would make us more mired in the quicksand, dragging even other innocent by-standers! But the worrying trend looks to be, no one is in charge to bell the proverbial cat as it runs amuck! We are going into unchartered territory, indeed!