Be Careful What You Wish For

A global economy closely binds the prosperity of the US and China, points out Henry Paulson, US treasury secretary. The US has been among the loudest clamoring for China to increase the value of its currency – but appreciation in the yuan may not necessarily ease US economic woes. China’s competitive advantage is not linked to currency differences alone, but also labor costs as well. A rising yuan could increase the price of many products, leading to global inflation and a resulting rise in interest rates. Remarks from the US treasury secretary reveal that he does not side with protectionists, but prefers open markets. Incessant borrowing combined with global trade imbalances are a source for US economic uncertainty in a fast-changing global climate, and the US could probably do much more to re-arrange its own financial house before making recommendations abroad. – YaleGlobal