In the wake of the fractious International Monetary Fund (IMF) meeting held October 9-10 in Washington, the descent into global currency and trade war has accelerated, with the United States playing the role of instigator-in-chief.
The US is deliberately encouraging a sell-off of dollars on international currency markets in order to raise the relative exchange rates of its major trade rivals, increasing the effective price of their exports to the US while cheapening US exports to their markets.
While largely responsible for the growing financial disorder, Washington is accusing China, in particular, of jeopardizing global economic recovery by refusing to more quickly raise the exchange rate of its currency, the renminbi (also known as the yuan). By working to drive down the value of the dollar, the US government and the Federal Reserve Board are placing ever greater pressure on the Chinese to revalue, ignoring warnings from Beijing that a rapid rise in its currency will harm its export industries, leading to mass layoffs and social unrest.
The protectionist cheap-dollar policy has an important domestic political function as well. It aims to divert growing public anger over the refusal of the government to provide jobs or serious relief to the unemployed away from the Obama administration and Congress and toward China and “foreigners” more generally. Among its most enthusiastic supporters is the trade union bureaucracy.
The US Commerce Department report Thursday that the US trade deficit widened nearly 9 percent in August, primarily due to a record $28 billion deficit with China, will be used to justify further trade war pressure against China.
The US policy and the growth of international tensions were on full display at the IMF meeting in Washington. US Treasury Secretary Timothy Geithner declared China’s currency to be undervalued and demanded that the IMF take a harder line against surplus countries, such as China, that fail to revalue their currencies and accept a reduction in their exports.