Protectionism

Well, the incoming administration is already saber-rattling economically.  Soon to be confirmed Treasury Secretary Tim Geither’s claims that China is manipulating its currency will stoke some fires.  As reported in the Financial Times:

The US and China have embarked on a public row over foreign exchange policy only three days after Barack Obama’s inauguration, with China denying on Friday it was “manipulating” its currency and saying the allegation would only fan protectionist sentiment in the US.

The pointed comments between the two governments will exacerbate concerns of a surge in trade and currency disputes as a result of the slump in the global economy.

We’re a very long way off from worrying about the way in which the US really got out of the Great Depression (WWII), but not too far off to be concerned about implications for international investing.  Let’s also remember that China has been lending us hundreds of billions of dollars for many years via their purchases of US Treasuries.  If they start selling them, we will face an even bigger problem than we already do as the cost of financing our recovery will increase.

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