Topic: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora. Indian Economy and issues relating to planning, mobilization of resources, growth, development.
3) China’s weakening of its currency to hurt US economic interests for political gains will only make other Asian countries more vulnerable to a political crisis. Comment in the light of recent currency manipulation steps taken by China. (250 words)
Why this question:
With a trade war between the US and China already having ruptured the stability in Asia, Beijing’s cheapening of the yuan has stoked fears of a ‘currency war’.
Key demand of the question:
The answer must analyse in depth the recent economic policies adopted by China in response to the ongoing trade wars with US.
Comment– here we have to express our knowledge and understanding of the issue and form an overall opinion thereupon.
Structure of the answer:
In brief put across the concept of currency manipulation.
Explain that China’s economy depends significantly on its exported goods. By devaluating its currency, the Asian giant lowered the price of its exports and gained a competitive advantage in the international markets. A weaker currency also made China’s imports costlier, thus spurring the production of substitute products at home to aid the domestic industry.
Explain the impact of such a move on global trade markets.
Effect on Asian markets – With Chinese goods becoming cheaper, many small- to medium-sized export-driven economies could see reduced trade revenues. If these nations are debt-ridden and have a heavy dependence on exports, their economies could suffer. For instance, Vietnam, Bangladesh, and Indonesia greatly rely on their footwear and textile exports. These countries could suffer if China’s devaluations make its goods cheaper in the global marketplace.
Provide for a passing reference to impact on India.
Conclude that China’s recent moves will continue to send ripples across global financial systems, and rival economies should brace themselves for the after-effects.