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Setting the stage for 'wars of competitiveness'
By Marcos Troyjo |
November 10, 2011, Thursday
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Print Edition
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THERE are increasingly louder voices in the United States against the way China manages its exchange rate. They aim at spreading the notion that the undervalued currency is China's most important tool to compete in the global economy.
Blaming the Chinese currency for the loss of jobs and businesses in the US is but a political discourse targeted at electoral audiences. It is a weak dollar, not an undervalued renminbi or yuan, that may cause major systemic market imbalances.
We are experiencing far more than just "currency wars." The world has set the stage for the waging of "wars of competitiveness."
Here, exchange rate clashes represent battles that are ancillary, not decisive.
The fulcrum of China's competitiveness is to be found in:
? How the Chinese make PPPs (Public-Private Partnerships) work as a springboard for exports and the attraction of Foreign Direct Investment (FDI);
? The still relatively low cost of its domestic factors of production;
? The high rate of domestic savings and investment, at nearly 50 percent of GDP, and
? Its vigorous business diplomacy.
The US is searching for allies in its criticism over China's currency. In multilateral forums, it has sought the endorsement of Brazil.
It would be wrong to describe any criticism by Brazil of China's economic policies as simply a way of "sharing the US view," which is first and foremost focused on the Chinese currency. Brazil has major concerns of its own over how the rise of China contributes to the "deindustrialization" of its economy.
Many Brazilian companies choose China not only as an export platform for third countries, but also because they eye the Chinese domestic market. This is increasingly problematic as China intensifies its policy of "local content" for goods produced by foreign companies in China, rather than simply buying them from abroad.
Political sympathies for China (and against the US) may have played a role in the recent growth of Brazil-China economic relations. The fact that China has overtaken the US as Brazil's top trading partner and major source of FDI is explained by three factors:
? The US did not pursue its interests vis-a-vis Brazil as actively as it should in the post-September 11 period. Washington overlooked the excellent description of Brazil's economic potential presented by The Council on Foreign Relations in its February 2001 "Memorandum on US Policy Toward Brazil."
? China's appetite for commodities (both agricultural and mineral) where Brazil has competitive advantages has naturally enlarged economic cooperation to other areas (logistics, infrastructure, airplanes and so on)
Brazilian manufacturers, who seriously worry about the "flood" of Chinese goods into the Brazilian market, would doubtlessly appreciate the central government in Brasilia taking action in terms of quotas and import restrictions.
However, they are less critical of China's exchange rate policies and more vocal on denouncing Brazil's outdated and non-competitive labor and fiscal laws, lack of domestic infrastructure and high domestic interest rates, which hurt Brazil's domestic and international competitiveness more than the overvalued real or China's cheap yuan.
Marcos Troyjo is a professor of international relations at Columbia University, where he codirects the BRICLab.
Blaming the Chinese currency for the loss of jobs and businesses in the US is but a political discourse targeted at electoral audiences. It is a weak dollar, not an undervalued renminbi or yuan, that may cause major systemic market imbalances.
We are experiencing far more than just "currency wars." The world has set the stage for the waging of "wars of competitiveness."
Here, exchange rate clashes represent battles that are ancillary, not decisive.
The fulcrum of China's competitiveness is to be found in:
? How the Chinese make PPPs (Public-Private Partnerships) work as a springboard for exports and the attraction of Foreign Direct Investment (FDI);
? The still relatively low cost of its domestic factors of production;
? The high rate of domestic savings and investment, at nearly 50 percent of GDP, and
? Its vigorous business diplomacy.
The US is searching for allies in its criticism over China's currency. In multilateral forums, it has sought the endorsement of Brazil.
It would be wrong to describe any criticism by Brazil of China's economic policies as simply a way of "sharing the US view," which is first and foremost focused on the Chinese currency. Brazil has major concerns of its own over how the rise of China contributes to the "deindustrialization" of its economy.
Many Brazilian companies choose China not only as an export platform for third countries, but also because they eye the Chinese domestic market. This is increasingly problematic as China intensifies its policy of "local content" for goods produced by foreign companies in China, rather than simply buying them from abroad.
Political sympathies for China (and against the US) may have played a role in the recent growth of Brazil-China economic relations. The fact that China has overtaken the US as Brazil's top trading partner and major source of FDI is explained by three factors:
? The US did not pursue its interests vis-a-vis Brazil as actively as it should in the post-September 11 period. Washington overlooked the excellent description of Brazil's economic potential presented by The Council on Foreign Relations in its February 2001 "Memorandum on US Policy Toward Brazil."
? China's appetite for commodities (both agricultural and mineral) where Brazil has competitive advantages has naturally enlarged economic cooperation to other areas (logistics, infrastructure, airplanes and so on)
Brazilian manufacturers, who seriously worry about the "flood" of Chinese goods into the Brazilian market, would doubtlessly appreciate the central government in Brasilia taking action in terms of quotas and import restrictions.
However, they are less critical of China's exchange rate policies and more vocal on denouncing Brazil's outdated and non-competitive labor and fiscal laws, lack of domestic infrastructure and high domestic interest rates, which hurt Brazil's domestic and international competitiveness more than the overvalued real or China's cheap yuan.
Marcos Troyjo is a professor of international relations at Columbia University, where he codirects the BRICLab.
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