Trade Tensions Surfacing Between Emerging Markets of the Global South

John Authers argues that the newsworthy economic story of late isn't dollar weakness; rather, it is the weak renminbi:

Many, if not most, hopes for global recovery are pinned on China buying goods from countries such as Brazil. Commodity prices, a key driver of equities and forex rates, also move in response to the new orders received by China's manufacturers.

This currency regime makes it far harder for such countries to sell to China. So it is no wonder that currencies are back at the top of the agenda.

China's currency is 15 percent cheaper against the dollar than it was in 1993. Meanwhile, many emerging market currencies are returning to their pre-crisis exchange rates.

China has been building stronger trade relations with the Global South for quite some time. It is now South Africa's top export destination. But many of these partnerships are built around China purchasing commodities, and selling manufactured goods. With a weakening currency, China is likely to purchase fewer non-commodity goods from its trading partners. This may lead to growing trade tensions, particluarly with countries not endowed with commodities.

Much attention has been paid to the importance of the economic relationship between China and the United States, or "Chimerica" (See this week's Economist cover story. Or Paul Krugman.). Rising trade tensions between the two economic powers could spell doom for the global economy.

Yet, one should not discount the importance of emerging market trade relations, and the possible tensions that may arise. Friday's Wall St Journal reports of Indian grievances toward China's trade practices:

Trade friction is growing between India and China. India leads all members of the World Trade Organization in antidumping cases against China. India has banned imports of Chinese toys, milk and chocolate, citing safety concerns, and has launched investigations into export surges of Chinese truck tires and chemicals, among other products.

Heavy industries minister Vilasrao Deshmukh recently told reporters, "We don't want India to be turned into a dumping ground". Yet, India's actions have had little effect on the growing trade imbalance between the two countries:

Alas, trade tensions are not only worrisome between the West and the East. They may prove problematic between the emerging markets of the Global South.

Comments

[LCACM:]

Surprisingly the Indian government has done little to stem the dumping of Chinese goods on the Indian market. This is destroying numerous small scale industries in India and is likely to have a negative impact on Indian employment and economic growth.

Oct 25 10:13 AM

[Swiftcreek1:]

This is just more proof positive that Communist China is not-so-quietly working to become THE new global Super Power.....A few questions remain:

Could the Governments of the other premiere economic powers put their differences aside long enough to stabilize their own economic situations and counter balance Chinese influence?..... Yes, they could......Will they? Doubtful, until it's too late......

Do those Governments have the will to do so without wrecking the whole process through politics?.....Not Likely. Especially here in the U.S. where getting re-elected is more important than actual service to the citizenry......Europe? Maybe, but the EU has other problems including a rising militant muslim population. The ASEAN Block? Again, not likely. Too much influence peddling in many of the countries and too large a gap between the "haves" and the "have nots" where the "haves" can be easily bought off.

Perhaps the biggest advantage the Chinese have is their focus on the singularly powerful goal of Chinese hegemony. It's a purely political goal given the nature of their government, but nevertheless the drive to achieve that goal is forcing the rest of us to be reactionary.

If we are to achieve something close to a global "balance" of trade then business people are going to need to be Proactive in facing the Chinese onslaught. Historically, (for our purposes since the Communist revolution in 1949) the primary Chinese disadvantage has been their rigid thinking, but they are quickly learning what Capitalists have known for years: How to make a deal, and how much easier it is to negotiate from a position of power.....In their case, right now, Money=Power.

Since we can safely assume that our Politicians will not be up to the task of staunching the flow of wealth to China, we can only hope they will have enough sense to get out of the way and let our businesses deliver the body blows that will drive them back to a neutral corner......

Good Day!

Oct 25 10:48 AM