There's a swag of diplomatic maneuvering going on that bodes badly for world trade.
The US has embarked on some renewed China containment strategy reminiscent of, but less formal than, the old mooted "quadralateral" of democracies, with Hillary charming us and Obama charming India. Japan can be assumed to be a party. This may be serious but who the hell knows, it sure doesn't appear thought through and tightly planned.
Peter Hartcher makes a lot of it though:
At the 25th annual Australia-US ministerial consultation (AUSMIN), Australia, in effect, chose sides. The government has entered into intense agreements with the US on sharing of intelligence and co-operation against cyber attacks.
This blogger will note that the truth is a bit less dramatic. There may be new formality here but we were never going in any other strategic direction. The real question is when will the heat come on to contain China's trade advantages?
China via Hu, on the other hand, is busy with Sarkozy pushing for a new global reserve currency and Bob Zoellick wants a debate on a new gold reserve, which also looks pretty chaotic.
These manoeuvres signal the real division heading into the G20. As opposed to the total diplomatic balderdash offered up by Bloomberg, that some China guy says that QEII is the best thing since chop sticks and Tim Geithner has abandoned his Q20 plan to address imbalances.
The reason for all the shuffling is obvious at the level of simple economic truth. John Garnaut outlines this morning how China's trade surplus is growing unabated:
None of their previous efforts to "rebalance" their economy away from exports are showing any signs of working.
Last year China's net exports detracted from its GDP growth, but in the recent September quarter net exports had returned to more than a third of GDP growth (3.7 out of 9.6 percentage points).
China's share of goods and services exports grew from 7.9 per cent in 2008 to 8.4 per cent last year. This year the World Bank forecasts that will shoot to 9.4 per cent. At this rate, China will supply 100 per cent of the world's imports by the end of the century.
And Andie Xie makes a good case for why everyone else is also going to fight the devaluing dollar:
Japan isn't in a position to appreciate the yen much. Its industries have lost competitiveness to Germany and even the US. Its industries haven't had a global hit product for years. Germany and the US auto industries are gaining over Japan's. It's hard to see how the yen could rise significantly. The Bank of Japan is vulnerable to political pressure. It doesn't have a good track record. If it allows the yen to destroy Toyota, Honda, etc., it's hard to see how it could remain independent. Hence, it will resort to QE to hold down the yen.
The euro is surging by default. The European Central Bank seems to still be talking like Budensbank. But, it can't sustain its position through the next sovereign debt crisis. When the euro is high, some euro-zone economy, though not Germany or France, will get into a crisis mode. It may join the QE crowd too.
The UK doesn't need to be persuaded to embrace QE. It is like a big Hong Kong, all about stir-frying stocks and properties. When the bubble bursts, it doesn't have much else to do - devaluing the currency seems the only way out.
Korea is small but always tries to join the big leagues. It is big in the automobile, electronics, and petrochemical sectors. Its government does not need convincing to watch over the exchange rate. Recently, it has been 'investigating' financial institutions for undesirable practices in the currency market.
In short, beneath the ponderous spin of the G20, we are slouching toward trade war.