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Friday, May 27, 2005

Andy's Back On Form

Andy, Andy who? Andy Xie, silly:

"The market and media are spinning a new story on China’s currency: the US is ordering China to revalue by more than 10% or face protectionism. Do not hold your breath. China will not buckle. China does not possess the conditions for a strong currency and will not succumb to foreign pressure and take a decision that may cause economic chaos at home.

The noises of protectionism can be deafening these days. The bottom line for protectionism is that the labor in high-cost economies cannot adjust as quickly as capital to seek out lower-cost production locations. This asymmetry may justify temporary and selective trade protection to address the mobility difference between capital and labor. As global companies extend their reach and increase the speed of capital mobility, the cases of targeted protection would increase. However, this would only affect the growth rate of global trade. Such protectionist measures do not imply that the trend of globalization is reversing.

Some argue that the labor backlash in the rich economies may stop or even reverse the trend of globalization. This sort of virulent protectionism did happen in the 1930s. I strongly disagree that the world could head down this path again. Today’s world is dramatically different from that in the 1930s when globalization suffered a severe setback. Modern communications and transportation technologies have dramatically shrunk the world. The interactions in the world community are rising rapidly. Politicians will not be able to stop the trend.

Of course, try telling this to French voters on Monday.

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