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As for the beggar thy neighbor, it has become clear over the past week that Chinese government officials intend to export their way out of the global economic crisis. This is all too readily apparent in the recent downward movements of the Chinese yuan relative to the dollar. Stripped of any rhetoric, this movement represents a "competitive devaluation" designed to boost Chinese exports to the US at the expense of both domestic US manufacturers and competing countries such as South Korea and Japan.
In fact, Chinese currency manipulation represents "beggar thy neighbor" on a grand scale. By grossly undervaluing the Chinese yuan relative to the US dollar over the past five years, China has grown its economy on the backs of American workers and helped to decimate the American manufacturing base. Today, it is almost impossible for American manufacturers to compete against their Chinese counterparts when the yuan is undervalued by 30% or more. Add to this an extensive array of illegal Chinese export subsidies, and it becomes easy to understand how China has been able to offshore so many American jobs to its own factories.
Under political pressure, China allowed the yuan to modestly appreciate relative to the dollar over the past year. However, despite this appreciation, the yuan still fell relative to the euro and other major currencies - in the process, significantly exacerbating China's trade imbalance with Europe.
-raghu.
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"My campaign is a disaster, Moe. I hate the public so much. If only they'd elect me, I'd make them pay." - from the Simpsons