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View Full Version : WWCJD: What will China and Japan do as the US devalues?



c1ue
08-18-08, 04:25 PM
There has been talk on the periphery on this subject, but I don't recall anything specific on what China, Japan, and the rest of Asia will do as the US continues its dollar devaluation ways.

Japan is clearly starting to hedge it bets: between reinvigoration of its own defense, change in its policy slant with China (from containment/labor leverage to slight ally), and virtual stoppage of buying US treasuries and what not - it seems clear that Japan is not going to double down in its past 50 year relationship with the US.

Japan though large is the minnow in its neighborhood: between China, Russia, and the US Pacific fleet - Japan is clearly in the marchlands between conflicts on any of the three parties.

China on the other hand is clearly both trying to consolidate its internal economic situation and solidify its internal political situation. The Uighurs continue their restiveness as do the Tibetans, while China's breakneck drive to modernise economically and militarily is still absorbing all free cash flow.

China also seems to have largely stopped buying US debt - or at a minimum cycling dollars through to buy resource rights in Africa.

China also has significantly revamped export direction - the recent rise in European trade is a good indicator.

The rest of Asia is unfortunately mostly on an earlier path: trying to gain export trade share with low labor but starting to do so very late in the world economic cycle.

What do you think will happen with China, Japan, and the rest of Asia with respect to the US?

My view is relations will still continue, but it will be 'cash on the barrel' from now on vs. 'pay us after 30 days' or 'we'll take your government check (bond)'.

That this will immediately start an export war inside Asia is the next logical step as all of the Asian nations except Japan (and maybe South Korea) are still heavily dependent on both outside investment and export income.

The Asian nation conundrum will be to balance their local foreign currency vs. oil subsidy expenses, vs. trade competitiveness.

This would actually be good for the US as it will somewhat mitigate the rise in prices due to the fall in the dollar, but as with all such scenarios will only last as long as it takes for consolidation to occur. Again China is in the driver seat here.

metalman
08-18-08, 10:33 PM
There has been talk on the periphery on this subject, but I don't recall anything specific on what China, Japan, and the rest of Asia will do as the US continues its dollar devaluation ways.

Japan is clearly starting to hedge it bets: between reinvigoration of its own defense, change in its policy slant with China (from containment/labor leverage to slight ally), and virtual stoppage of buying US treasuries and what not - it seems clear that Japan is not going to double down in its past 50 year relationship with the US.

Japan though large is the minnow in its neighborhood: between China, Russia, and the US Pacific fleet - Japan is clearly in the marchlands between conflicts on any of the three parties.

China on the other hand is clearly both trying to consolidate its internal economic situation and solidify its internal political situation. The Uighurs continue their restiveness as do the Tibetans, while China's breakneck drive to modernise economically and militarily is still absorbing all free cash flow.

China also seems to have largely stopped buying US debt - or at a minimum cycling dollars through to buy resource rights in Africa.

China also has significantly revamped export direction - the recent rise in European trade is a good indicator.

The rest of Asia is unfortunately mostly on an earlier path: trying to gain export trade share with low labor but starting to do so very late in the world economic cycle.

What do you think will happen with China, Japan, and the rest of Asia with respect to the US?

My view is relations will still continue, but it will be 'cash on the barrel' from now on vs. 'pay us after 30 days' or 'we'll take your government check (bond)'.

That this will immediately start an export war inside Asia is the next logical step as all of the Asian nations except Japan (and maybe South Korea) are still heavily dependent on both outside investment and export income.

The Asian nation conundrum will be to balance their local foreign currency vs. oil subsidy expenses, vs. trade competitiveness.

This would actually be good for the US as it will somewhat mitigate the rise in prices due to the fall in the dollar, but as with all such scenarios will only last as long as it takes for consolidation to occur. Again China is in the driver seat here.

china will address this by boosting domestic demand. all they have to do is lower export tariffs to make goods more affordable at home.

phirang
08-18-08, 10:56 PM
china will address this by boosting domestic demand. all they have to do is lower export tariffs to make goods more affordable at home.

It's funny, because I keep forgetting China has a metric-shyte tonne of cash in reserves.

As an American, the concept of cash reserves for a government eludes me.:)

metalman
08-18-08, 11:14 PM
It's funny, because I keep forgetting China has a metric-shyte tonne of cash in reserves.

As an American, the concept of cash reserves for a government eludes me.:)

yeh, they got a dozen knobs to turn that are still set to '5' that go to '10' like surplus labor in the country, high export tariffs, aforementioned shitpile of cash, and don't forget a mountain of nationalist sentiment and a dictatorship to run it with.

c1ue
08-19-08, 11:01 AM
china will address this by boosting domestic demand. all they have to do is lower export tariffs to make goods more affordable at home.

Sounds reasonable.

I do wonder how realistic that is though - given that the large Chinese manufacturers have piled on tremendous amounts of debt and capacity in order to fuel their ongoing export manufacturing expansion.

The interest on this debt plus capital tied up by breakneck expansion would seem to force reliance on higher paying export goods; I doubt margins would be as good internally.

Sure, a drop in tariffs will mean somewhat lower prices, but will wages and jobs be able to keep up?

And would the Chinese government allow a borrowing bubble to occur as as happened in the US, UK, and Spain?

touchring
08-19-08, 12:29 PM
I do wonder how realistic that is though - given that the large Chinese manufacturers have piled on tremendous amounts of debt and capacity in order to fuel their ongoing export manufacturing expansion.

The interest on this debt plus capital tied up by breakneck expansion would seem to force reliance on higher paying export goods; I doubt margins would be as good internally.

Good question, yes, definitely the margin will be a lot much lower, but probably more relevant to Indian outsourcers selling to American companies. They'll probably be able to charge only 1/5 of what they charge to their American customers. :D

By the way, lots of small chinese manufacturers closing down as we speak.

phirang
08-19-08, 12:35 PM
China's gone through busts before... hell, their stock market has collapsed since last year, yet the country is still chugging along!

touchring
08-19-08, 12:37 PM
China's gone through busts before... hell, their stock market has collapsed since last year, yet the country is still chugging along!


They treat their stock market like playing mahjong, hell, you could make or lose. It's pure gambling.