6
Jul

J.Pozuelo-Monfort, MSc candidate in economic development at LSE.
Jaime PM.jpg
A recent piece on the Financial Times explains the measures promoted by democratic candidates Clinton and Obama to tackle the US current account deficit. The US has a problem also faced by Spain: it imports much more than it exports. China is therefore the target and its presumably undervalued currency the punchline of the discussion.
Chinese imported goods are as a result undervalued and sold at below market prices, which hurts the US industry as much as it hurts Europe. However this technique might intend to calm the public opinion in the US that is more and more afraid of the effects of globalization on their undermined economy.
The US and Europe need to enforce labor codes to Chinese suppliers in particular and Asian manufacturers in general. If the Walmarts and Targets of the world enforce labor standards to their suppliers and threaten them to not purchase the merchandise if they do not proceed as indicated, prices will likely go up because operational costs will probably go up.
Enforcing labor standards will therefore have a double positive impact on both sides of the Pacific, while in the meantime China continues to finance the US current account deficit and the US benefits from a weak euro-dollar exchange rate, that is, in the end hurting Euroland. Europe could also complain that the US is artificially maintaining a weak dollar.
It is a concern on both sides of the Ocean, be it the Pacific or the Atlantic.

Comments

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