Maybe this is just an "Asian currency skirmish"
If you read about international economics long enough, you’re going to stumble across the phrase “Asian currency war.”
It’s an eyebrow raiser, to be sure. War is a strong word; it attracts attention. But is there some truth to it? Consider what Sergio Rocha, chief of General Motors in South Korea, told the Financial Times:
“On (South Korea’s) left and right side, they do things to support their own industry, to allow them to export –– both China and Japan,” Mr Rocha said in an interview with the Financial Times.
Even after a retreat over the past two months, the South Korean won has strengthened by 6 per cent against the US dollar since late May last year.
This is dwarfed, however, by its 27 per cent rise against the yen over the same period, which has come as the new Japanese Prime Minister Shinzo Abe pushes for looser monetary policy.
South Korea stands “on the front line of the Asian currency war”, says Société Générale, while industry analysts warn that carmakers will be the hardest hit among the country’s exporters.
There’s that phrase again.
It may surprise some to hear a GM executive calling for devaluing of a currency. After all, the American government owns a chunk of GM, even if it’s winding down its commitment –- and the last time we checked (yesterday), official Washington had a hard time acknowledging that currency manipulation exists.
Well, check your astonishment at the door, writes economist Clyde Prestowitz. GM has skin in the game; its operation in South Korea stands to lose serious market share to Chinese and Japanese competitors as the governments of those countries keep their own currencies low. But Prestowitz looks past that, and focuses on Washington’s policy stance, which increasingly looks like it was determined by a game of Twister:
As an owner of GM it is implicitly associating itself with Rocha's complaints. Yet at the official level, the U.S. Treasury, the White House, and the State Department all maintain that, Rocha to the contrary notwithstanding, there is no currency manipulation going on in China or Japan. Indeed, for the past four years, the Secretary of the Treasury has carefully and steadfastly refrained from making any finding of currency manipulation by anybody even when countries have been accumulating enormous dollar reserves as a result of dollar buying in the global currency markets. Maybe Rocha and Jack Lew, the new U.S. Treasury Secretary, should Skype for a while.
Officials are probably going to have a harder time holding the line after today’s news from the Bank of Japan that it will be making a serious move to devalue the yen:
Bowing to demands from Prime Minister Shinzo Abe, the Bank of Japan announced April 4 that it would reconfigure its policies to double the money supply, or the amount of funds in circulation, and achieve a 2 percent inflation target at the “earliest possible time.”
This is what they call “Abenomics” in action. At the Alliance for American Manufacturing (AAM), we say currency manipulation ultimately harms American businesses and American workers –– and we certainly shouldn't reward countries that do it with trade deals like the one currently being discussed with nations around the Pacific rim. If you agree, you can send this handy little letter to your representative in Washington to tell them as much.
Let's play peacemaker here: Let's encourage Asia to call off its currency war, before someone returns Japan's latest salvo.
Read more about Japan's big decision on its monetary policy here. Read more of Clyde Prestowitz's take on currency manipulation here. And read a recent take on efforts to fight currency manipulation by AAM's Scott Paul here.
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