Western Chems: Exporting Into More Domestic Trouble?

China’s migrant workers – a risky game…


xin_100103021119578114712.jpgSource of picture: China Daily



By John Richardson

THIS very disturbing Op-Ed piece by Paul Krugman in the New York Times argues that the US needs to impose a 25% tariff on Chinese imports in response to the value of the Yuan being held at an artificially low level.

In 1971, the States placed a 10% tariff on Germany and Japan, forcing both to revalue their currencies.

As one of the comments posted in response to the piece points out, such a high tariff would leave millions of migrant workers in China out of work, thereby creating the potential for politically de-stabilising social unrest. China, unlike the US, doesn’t have an unemployment benefits system that would keep people above the bread, or rather rice, line.

The Krugman piece suggests – if his figures about the swelling China current account surplus are to be believed – that it’s the country’s ability to export its surpluses which is providing perhaps the biggest support to the economy.

In other words, China’s recovery, and the corresponding rise in chemical and polymer imports, might be more the result of an export boom than strong local growth

When I say export boom, this has to be qualified by the likely deflationary impact of the recovery in China’s exports. Pricing per unit is liikely to be down, but volumes are up. This is a trend being encouraged by the big Western retailers in response to weak consumer spending.

And, ironically, as Western chemicals and polymer producers export every one of their spare molecules to China as welcome relief from moribund home markets, they could well be further damaging customers back home – their local manufacturers!

The article also points to rising trade tensions and an increase in protectionism.

A date to watch is 15 April, when the US Treasury Department is scheduled to announce whether it has classified China as a currency manipulator.

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