Good piece tonight from Michael Pettis arguing that the China must continue revaluing its currency, and strongly resist devaluation, despite evidence its trading partners are doing just that. Anything else would lead to protests that China is not competing fairly, that it is, in effect, as the country running the largest trade surplus in the history of world, placing a pseudo tariff on imports — which would be devastating:
In the 1930s, Smoot-Hawley had that very effect, and as the country with the world’s largest trade surplus in the 1920s, the US found itself, ironically, as the greatest victim of the contraction in world trade it did most to sponsor. As I have argued many times in a world of contracting demand, it is countries with excess capacity or negative net demand – the trade surplus countries – who are most vulnerable to a collapse in international trade. Even more than the US in the 1930s, China would suffer enormously from trade war.