Looking at last week’s China currency moves, some analysts are a little too eager to declare a war. Part of this is that a good old-fashioned war might provide some excitement in a news media sense. A good case in point is Greg Ip at Wall Street Journal, writing “China Fires the First Shot in a Currency War.” Ip’s headline invents ammunition to try to make a made-up war seem real.
The unexciting reality of the situation is that there is no war, only a worrisome decline. When you see the more sensationalist kind of currency-war analysis this weekend, consider that there is nothing in it to tell you when it was written. Ip’s piece could have been written at any point in the last ten years. It is based, after all, entirely on preconceptions, with no concession to or even mention of what actually just happened in China or the way the world reacted.
There are, to be sure, currency wars from time to time, but this is not one of them, at least not so far. China’s moves come from weakness and desperation and do not carry the energy or bluster of an attack on the world. For a more nuanced, if still worried, view of the currency moves and their impact, see Zoe Hu’s interview with Rajiv Biswas at Al Jazeera:
In the current circumstances, the China devaluation probably will not revive Chinese exports, but will surely cut into manufacturing efforts in emerging economies. Thailand is an example of the kind of country that may suffer the worst if there is a global manufacturing slump. China has already cut into Thailand’s position in computer components and may try to use its position to further erode Thailand’s share of the market. For its part, Thailand says if there is a currency war, it will stay out. Finance Minister Kittiratt Na-Ranong quoted in Bloomberg:
“I will never encourage Bank of Thailand to go and trade against the market-determined rate unless it’s only part of the daily stability, the weekly stability.”
Some inflation could follow across East Asia, but all this talk of a currency war will fade by next month when it becomes clear that there are real problems at issue more serious than the currency war so many are imagining right now.