Tuesday, August 07, 2007

US in a Nuclear Trap: China

China is threatening to use its 'nuclear option' against the US economy, by liquidating its dollar-denominated assets in favour of other currencies. This could tip the US into a deep recession, even as the dollar is already dropping unprecedentedly low against other currencies.

Indian growth could be affected, due to its overexposure to the US economy, but on the other hand the pressures from a recession could expedite the rush for US companies to avail themselves of India's outsourcing cost-advantages.

All in all, the more China threatens the US, the more the US has to turn towards India, and the more our leverage increases.

6 comments:

Sage said...
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san said...

They may decide to cut their losses while they can at an acceptable level, and avoid future investment into a dollar that they see as a trap for them.

ab said...
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ab said...

And what about the massive chinese exports to the US - which would be hard hit if dollar weakens.US is running a huge import surplus, which is benefitting many exporting countries.

It cannot curb its import demand without slowing down its economy first and if the current deficit continues, dollar will only weaken, which wil make other counties exporing to the US weaken, because of which they will import less from US , again leading to its economic slowdown

the scenario looks bad from every angle

Sage said...
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Harish said...

Only Han Communists can come up with something like this..

http://www.news.com.au/heraldsun/story/0,21985,22183463-5005961,00.html