One of the main topics of Friday's G20 summit was how to correct the trade imbalances that contributed to causing the crises and that hinder recovery. Certainly the tension was heightened as the leaders of the top 20 most powerful economies sat together in one room and tried to find the solutions to end the worst economic crisis in history. In an address at the summit Obama wielded his usual rhetorical tactics as a crutch, grappling at glimpses of "hope," "change," and a common goal of economic prosperity that "we" all want to see in an attempt to sway his audience to a 4% limit on national trade deficits. Which, apparently, was no where near reached. Nor was it a realistic to believe that it is even remotely accomplishable.
The root of the problem, according to the US, lies in the improper valuation of the Chinese yuan-artificially weak-giving the Chinese an unfair advantage in foreign markets and exports. In Obama's address he alluded to the fact that the Chinese are highly dependent on the American market and demand. All of this having a domino affect around the world. China claims that it is doing all it can in order to "revalue" its currency but can only do so much in such unstable economic waters, and must wait until the storm clears.
Although it might make be in everyone's best interest for China to value its currency to reflect actual economic situations, its in China's best interest not to. It's a simple application of realism and action based on self interest. The theory of realism argues that a state 1) will always act out of self interest, 2) can never and should never trust another state 3) security is the most important goal. We can see this most clearly on the domestic political level, especially in the United States. Currently there is a call to return to conservatism, to protect the "self"- being the United States citizen. I argue that this is due to the threat of the economic crisis. The emergence of the far right "Tea Party" is a direct reaction to the crisis (and the way it has been handled).
The tension from this "threat" is being felt all over the world, and naturally (according to realism) states are going to act out of their own self interest in order to protect themselves from further damage from the crisis. In this case, China is benefiting from having artificially weak currency, raising it to its proper value would mean a decrease in exports and a decrease in GDP- why would it ever make sense for China to do that? Because its fair? It is going to take much more than political jargon and G20 summits to change China's mind about it's currency. China already has the upper hand in the situation and realizes the position it has put other nations, like the US, in. In order for real "change" to happen there has to be real incentive.
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