By Ronald McKinnon

Tensions between the US and China escalated recently when Timothy Geithner, the new US Treasury secretary, suggested that China might be designated as a “currency manipulator’. Premier Wen Jiabao mounted a vigorous defence of China’s existing exchange rate policy at a high level meeting of world leaders at Davos, Switzerland. Mr Wen pledged to keep the renminbi at a “reasonable and balanced level”. Continue reading "China’s exchange rate policy is the quid pro quo for fiscal expansion"

By Eswar Prasad

Timothy Geithner, in his first foray into international economic affairs as US Treasury secretary, has kicked off a public row with the Chinese by accusing them of currency manipulation. The Chinese have vehemently rebutted this accusation and flexed their own muscles, telling the US to get its own house in order before lecturing others.

The world economy, already on its knees, cannot afford escalating economic tensions between China and the US. Continue reading "The US and China: A grand bargain?"

By Ricardo Hausmann

China is definitely part of the global imbalance. It is running a current account surplus in excess of 10 per cent of gross domestic product and it is accumulating reserves as if they were as profitable as a Madoff investment was supposed to be. Were it not for this fact, its currency would have appreciated much more than it has.

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By Michael Pettis

The post-1997 global balance is breaking down, and the world is lurching drunkenly to find a stable new balance. Until now, Chinese overproduction has balanced US overconsumption, leading to China’s massive trade surplus and capital account deficit. Inevitably, however, a reduction in US overconsumption, a necessary consequence of the financial crisis, must force a corresponding reduction in overproduction elsewhere, and China, like it or not, will have to bear the brunt of the adjustment. Continue reading "How will China deal with the US adjustment?"

By Members of the Asian Economic Panel

The recession in the US and parts of Europe is likely to be severe and prolonged, and the Asian economies should take urgent and co-ordinated action to protect their economic growth in the face of recessionary conditions in the US and Europe. Continue reading "Towards a co-ordinated macroeconomic expansion among Asian economies"

By Richard Portes

Expectations for the G20 meeting on November 15 are excessive. It will not agree on changes to the institutions of global governance, nor will it come up with an ‘n-point plan’ for dealing with the crisis. Continue reading "Capitalising on the crisis"

By Ronald McKinnon

As always, I am amazed by how much analytical ground Martin Wolf covers in each column; “Why agreeing on a new Bretton Woods is vital” is no exception. Let me first pick up on one point: the number of countries involved in the negotiation.

The original Bretton Woods agreement was essentially bilateral, and negotiated between the British Treasury (Keynes) and the US Treasury (White) in 1943-1944, with Canada sometimes acting as an umpire.

The post-war General Agreement on Tariffs and Trade cum World Trade Organisation negotiations were manageable and quite successful as long as they were also mainly bilateral - the eastern European bloc versus the US - with Most Favoured Nation treatment extended to most other countries.

Developing countries did have a marginal say. The old GATT exempted them from the requirement to reciprocally reduce their own tariffs. This was disastrous for them, and fortunately is being phased out under the new WTO. Continue reading "How the US and China should deal with the global downturn"

By Jean Pisani-Ferry

As the collapse of the trade talks in Geneva in July made clear, there is no longer any meaningful trade negotiation without the main nations from the emerging world. The year 2008 may go down in history as the one in which rich countries discovered that this applies to macroeconomic policies, too.

In January it looked as if the opposite lessons could be drawn from events. For a while, Ben Bernanke at the US Federal Reserve and Jean-Claude Trichet at the European Central Bank seemed to be the only relevant policymakers in the world – and they were, as far as liquidity strains were concerned, if only because the US and Europe account for about two-thirds of the global supply of financial assets.

But as months went by, it became clear that countries affected by the shock represented merely a half of world gross domestic product, two-fifths of global energy demand and not even a third of world cereal consumption. Furthermore, rich countries have significantly less weight at the margin: their contribution to world growth is about half their share of world GDP, so one-quarter of the total, and the same rule of thumb applies even more to the demand for oil and foodstuffs. So in the market for scarce commodities, the effects of the slowdown in the US and Europe were offset by domestic booms in the emerging world.

The remainder of this column can be read here. Debate from our expert panel appears below.