Azerbaijan, Baku, Jan. 11 / Trend A. Badalova /
The global trade war is unlikely to occur, however the exchange rate policy of China is still a major threat for that, the international experts said.
The IMF and the G-20 so far have not been able to resolve fundamental international economic imbalances that are creating the dangers of a currency war, an economist at the Center For American Progress, Dr. Adam Hersh said.
"The fundamental imbalance comes from China's policy of maintaining an undervalued currency," he told Trend via e-mail.
This has held back economic growth and recovery in the United States, which means smaller and more competitive export markets for other developing countries, and a tendency for financial capital to flow out of the United States, where growth is low compared to developing countries, where growth is higher.
In an interview with British newspaper Financial Times this week, Brazilian Finance Minister Guido Mantega warned of the threat of a gobal trade war, which could be caused by continuing "currency wars". In particular, the Minister said that the program called QE (Quantitative Easing) is a part of a well considered strategy of the country to weaken the dollar and to gain unfair advantage in world trade.
The minister said that Brazil intends to complain to the World Trade Organization (WTO) and to ensure that the organization referred the manipulation of exchange rates to the covert export subsidies.
China's manipulation of the renminbi remains a far more likely flashpoint for a global crisis than the US stance on dollar, Capital Economics analysts said.
Brazil's sensitivity over this issue is understandable, they said. Real has climbed by around 37 percent against dollar since the beginning of 2009. But this move is essentially just a retracement of the collapse in the Brazilian currency during the early stages of the global financial crisis. Correspondingly, it makes little sense to blame the slide in Brazil's trade with the US into deficit on the latest swings in the currency. A far more logical explanation is the relative weakness of the US economy in recent years, analysts said.
Tensions over trade will persist in 2011 and probably reach a crunch point in 2012, they said.
According to Hersh, an international multilateral response is needed to persuade China to adjust its exchange rate peg in order to ease the pressures of global economic imbalances.
Moreover, developing countries in particular should be given space to implement "capital controls" to manage the tidal wave of capital inflows and to deter destabilizing speculation that puts upward pressure on currencies.
And finally, US fiscal policy should focus in the short term on reviving growth and job creation, Hersh said.
"Certainly, there are casualties of current macro policies in the United States, and Brazil and other emerging markets are the main casualties. But I don't think currency swings will metamorphose into a trade war," Director of the European Centre for International Political Economy (ECIPE), Fredrik Erixon said.
So far they /developing countries/ have managed currency swings pretty well, and I don't think they have had any significant effects on trade, he told Trend via e-mail.
According to the expert at George Mason University, Alex Tabarrok, the world trade is now recovering strongly and is a source of world growth.
"In the Great Depression, world trade plummeted as countries around the world threw up tariffs and other barriers to imports. Fortunately, we appear to have learned some lessons and in this recession we have not seen a similar rush to protectionism", director of research for the Independent Institute, Tabarrok told Trend via e-mail.
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