'At the annual meetings last month of the International Monetary Fund, managing director Dominique Strauss-Kahn spoke of a possible “currency war”. The European Union wants China to let its yuan appreciate; Japan and Switzerland have been selling their currencies to ward off appreciation, and emerging economies are blocking capital inflows to avoid currency appreciation and asset price inflation.
'However, centre stage belongs to the US’s long-standing claim that China maintains an undervalued yuan to gain a competitive advantage for its exports.
'The US took its complaint to a new level when Congress voted to impose penalty tariffs on Chinese imports. While the bill is still to pass the Senate, it is one more manifestation of the US’s conviction that China’s regime is unfair and should be acted upon.
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'The only way to deal with the crisis is to negotiate and agree on policies outside the realms of unauthorised trade restrictions. That opportunity presents itself at the forthcoming meetings in South Korea and Japan. The stakes are high. Unless a solution is found, the currency war may well become a trade war, with an unknown outcome for the world economy.'
Gary Sampson's Executive Series session, Business and World Trade, is informed by his own experience working at both GATT and the WTO. At the WTO he taught in the Advanced Management Program at INSEAD as well as Executive Development Programs and the MBA.
