Monday, November 8, 2010

What To Watch On Obama's Asia Visit

As Obama visits several Asian countries, we will see whether the US aligns with the largest Asian nations who share a growing uneasiness with China's rising economic and military power. Professor Peter Navarro suggests the possibility of the US raising the stakes by considering the sale of sophisticated weapons to India to reduce the trade deficit and send China a message. See the following post from The Street.

President Obama visits India and Indonesia on his way to the G-20 Summit in South Korea and an Economic Forum in Japan. Here's what you need to know:
  • This is an economic mission. Obama will announce in India significant deals with American companies like GE(GE_) and Boeing(BA_) to strut his economic stuff. For once, America seems to be getting the better of a deal.
  • In advance of the G-20 summit, Obama wants to garner political support from all four countries for pressuring China to strengthen the yuan.
  • India and Indonesia are getting flooded with speculative hot flows; Japan has been directly hammered by China through its purchases of Japanese bonds; and South Korea maintains a stiff upper lip in the face of an over-valued won.
This is much more a strategic mission.
  • India, South Korea,and Japan (and to a much lesser extent, Indonesia) are the "countervailing power" countries the U.S. wants to woo and align itself with as it tries to contain China economically and militarily. This is a high-stakes strategy that risks Chinese ire.
  • Both India and Japan have ongoing territorial disputes with China -- India by land, Japan by sea. South Korea faces a China-backed North Korea. All countries are getting hammered by Chinese mercantilism, while also benefitting from the China trade flows. All are uneasy about the rise of China.
  • Selling sophisticated weapons to India, along with nuclear technology, is a crap shoot that ruffles Pakistani feathers and further destabilizes the region, but it pays for our trade deficit AND it sends China a message.
Any political gain from the trip has been successfully sabotaged by the $200 million a day attack -- politics never takes a holiday. The real payoff of the trip -- or failure -- will come at the G-20 summit when trade issues with China are addressed.

This post by Peter Navarro has been republished from The Street, an investment news and analysis site.
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