Monday, October 18, 2010

The Road to Trade War Runs Through QE, Currency

Nouriel Roubini writes:
Currency tensions have reached a boiling point. Everyone desires a weaker currency to sustain growth via net export improvement. But the zero-sum game in currencies and net exports means one country’s gain is some other country’s loss, and a competitive devaluation war has ensued. Currency wars eventually lead to trade wars, as the recent U.S. trade legislation threatening China shows. With the U.S. unemployment rate at almost 10% and Chinese growth at almost 10%, it is no wonder that the drums of trade wars are beating harder. (More here)
It should be noted that those that are truly damaged by currency wars are the citizens of the countries that are waging the battles. These weaker currencies mean higher costs for citizens, as the price of imports climb and as trade overall is hampered.

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