The recent announcement by the US Federal Reserve that it will print more dollars raises fears of an impending currency war. Can the threat of a currency war be transformed into something more benign? Better still, can it stimulate fresh ideas and moves that lead to robust global economic recovery? The answer is yes if we pursue win-win business deals with imagination and goodwill.
Put simply, the proposal is for China and other Asian countries to buy European technologies and assets. With the money, European companies can then buy technologies and assets from elsewhere, including the United States. This will provide a benign environment for growth in the real economy, because it will reduce the global trade imbalance and help the dollar to recover.
At the heart of the issue are US trade deficits and the huge buildup of foreign reserves held by other economies in US dollars. One obvious solution is for these countries to increase their imports from the US and to buy into US assets. But what happens if the US restricts sales of goods and assets that foreign companies want to buy?The US has banned high-tech exports to China and has blocked takeover bids by Chinese companies.
The US has not limited takeover bids in the strongest sense. China has and continues to take position in US entities. Yet it has not taken the extreme position that Japan did in their peak period in the 1980s.
And China is not alone in such matter. A Middle East country was not allowed to buy a port facility. The reason? The US does not consider these countries as friends and therefore does not trust them.
But why should the US deny trade with countries that overtly threaten its security. Would we want to arm Iran and allow it an easier path? This is perhaps a weak excuse on the part of China.
Let us for a moment ignore the question whether it is wise for the US to impose such restrictions. Let us instead ask if there are other ways to solve the problem. Europe has many things that the US has. But unlike the US, there is no unified will to restrict exports of a given technology or to disallow the sale of assets to foreign buyers. This provides a more favorable environment for buyers from Asia.
Then does Europe become just a pass through to US exports.
China, with its vast pool of engineering and scientific expertise, does not always need to buy the most advanced technologies. There are two advantages of not going for the very best - one is the cost advantage, the other is that it faces much less official restrictions on exports. China can then use its technical skills to improve on these no-longer new technologies, as it has done in the case of its high-speed railway.
So does this mean China wants to disintermediate the US?
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