The Lender Of Last Resort
Ever borrow money from a crack dealer so you can buy more crack?
That's pretty much what Europe is looking to do right now. Though I have to be honest, it might be the best option on the table.
Wen Jiabao has said that China will be willing to offer Europe some loans, which Europe desperately needs. But there is one, rather large, string attached.
China would have to be classified as a “market economy” instead of a “nonmarket economy.”
In international trade legalese, the new designation would make it almost impossible for Europe to impose tariffs on Chinese goods considered unfairly cheap. Which means all that European protectionism would have a hard time, at least in the lower-end manufacturing sectors.
By classifying China as a nonmarket economy, the European Union allows its antidumping investigators to compare the price Chinese exporters to Europe charge with the price of goods from other low-cost countries. Antidumping duties, which can exceed 100 percent, are assessed if Chinese prices are lower.
But if China were labeled a market economy, antidumping investigators would have to compare the export prices Chinese companies charge with the prices they charge for the same goods in China. Virtually all prices in China are very low in terms of other currencies, partly because of China’s extensive intervention in currency markets to keep its currency, the renminbi, weak.
The net result of this? The EU will probably be too stubborn to give in, at least until it is too late, or serious damage has been done to the eurozone economies (though they are all idiots for linking together completely different countries under one monetary policy...)
That's pretty much what Europe is looking to do right now. Though I have to be honest, it might be the best option on the table.
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| Winning |
China would have to be classified as a “market economy” instead of a “nonmarket economy.”
In international trade legalese, the new designation would make it almost impossible for Europe to impose tariffs on Chinese goods considered unfairly cheap. Which means all that European protectionism would have a hard time, at least in the lower-end manufacturing sectors.
By classifying China as a nonmarket economy, the European Union allows its antidumping investigators to compare the price Chinese exporters to Europe charge with the price of goods from other low-cost countries. Antidumping duties, which can exceed 100 percent, are assessed if Chinese prices are lower.
But if China were labeled a market economy, antidumping investigators would have to compare the export prices Chinese companies charge with the prices they charge for the same goods in China. Virtually all prices in China are very low in terms of other currencies, partly because of China’s extensive intervention in currency markets to keep its currency, the renminbi, weak.
The net result of this? The EU will probably be too stubborn to give in, at least until it is too late, or serious damage has been done to the eurozone economies (though they are all idiots for linking together completely different countries under one monetary policy...)
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