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On Trade Wars and Currency Skirmishes

The early battles have already been fought.

12:00 AM, Oct 9, 2010 • By IRWIN M. STELZER
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All of which means that the changes in the trade balance that might result from an appreciation of the yuan will do little to rekindle American enthusiasm for free trade. There is more to American irritation with China than the exchange rate, or even China’s persistent theft of American intellectual property. There is concern that a new enemy is emerging while, to borrow from Jack Kennedy, America’s political establishment sleeps.

The rest of the world is more narrowly focused on China’s currency manipulation. Since its trading partners can’t get China to increase the value of its currency, which is dropping in lock step with the dollar, they have decided to reduce the value of their own currencies in a competitive round of devaluations that bode ill for world economic recovery. Japan is intervening to drive down the yen, Brazil is taking steps to lower the value of the real, and France’s president, Nikolas Sarkozy, wants to put in place a new currency system that will prevent the euro from appreciating.

John Lipsky, first deputy managing director of the International Monetary Fund, says there is no currency war. Treasury secretary Timothy Geithner, the sole survivor of the original Obama economic team, says, “We’re not going to have a trade war. We’re not going to have currency wars.” Unfortunately, those estimable gentlemen are confusing their hopes with reality: The early skirmishes in those wars have already been fought.

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