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This Economics is Tricky Stuff

The Obama Administration has decided that Asia matters

The Obama Administration has decided that Asia matters. Driven primarily by the specter of emerging Chinese economic might, the President is nonetheless embracing the region as a whole.

Set aside his glib use of his childhood years in Indonesia as making him the "first pacific President." Obama appears to be sincere in paying as much attention to Asia as to Europe.

His "differences" with several Asian nations over human rights--ranging from mild rebukes to China, strong advice to Myanmar, and crisis management with North Korea--tend to obscure the reality that the real debate is about economics.

And it is with economics that former law professor Obama may receive a schooling. Unlike political diplomacy, which is often a zero-sum game, economic diplomacy is far more nuanced and unpredictable. Push a button here, pull a lever there, and a whole new unforseen picture may be created.

The top item on this agenda is the continued undervaluing of China's currency, which has allowed the country to generate enormous sales of everyting from party favors to laptop computers at great prices to consumers in the US and throughout the world.

Stop pegging the currency to the dollar, let it float, the argument goes, then US producers will have a more level playing field, and all those great jobs will return to Ohio and Michigan, as Obama promised they would during his campaign.

One of the big problems is that a stronger Chinese currency will reduce the value of the hundreds of billions of dollars of US debt that China has steadily acquired in recent years.

A strong Chinese currency won't necessarily cause a proportionate fall in the value of the dollar, but it should. This would be a disaster from where I often sit in the Philippines, a country that generates about 13% of its economy from millions of overseas workers, about half of them in the US.

A recent dollar weakening dropped the exchange rate here from around 48 to around 46 to the dollar, something that immediately cut the inflow of remittances from the US by about $1 million per day.

It's generally agreed that in the long term the country needs to develop more of its own good jobs and get off of the addiction to foreign remittances. Of course, it's also often argued that the US should get off its addiction to foreign oil. Which will happen first?

Who cares about the Philippines, anyway? The Obama administration says it does, and a recent friendly visit by Hillary Clinton underscored that point.

There has been enough economic success in recent years to take Thailand and Malaysia to classify them as newly-industrialized rather than developing; to launch Indonesia into the G20 and give it a major regional spokesperson role; to pronounce Vietnam as the new It Girl; and to bring ubiquitous megamalls and world-beating communications to the Philippines.

But when elephants battle, the grass suffers. And there are 600 million people in the grass in Southeast Asia. All of the progress cited above could be crushed quickly.

Obama demagogued the globalization issue during his campaign, using Bill Clinton's NAFTA legacy as a weapon against Hillary during the primaries, and excoriating those American businesses who dared to outsource. He seems to believe in tactical trade barriers, reminiscent of 70s-era anti-dumping allegations against Japan.

And now he his saying that Americans need to "save more and spend less" so that the economy doesn't go into freefall again as it did in September 2008 (ensuring his election in the process).

He will find that what gets people to cheer on the stump in Youngstown won't pass muster in Singapore this week, as he engages 54% of the world economy at a US President's first visit to an APEC meeting.

More important, he will find that the unthinking, blind cruelty of the world economy will make a mockery of his best-played talking points.

If Americans truly started to spend less just because they think they should, why yes, that would reduce the trade deficit with China. It would also be the absolute best way to plung the world back into deep recession.

If China sudddenly lets its currency float, watch what will happen to the value of its US investments. This move may actually crush the dollar.

If the dollar gets crushed, no one in the Philippines will be happy. What the country always seeks is a stable dollar, not a particularly weak or strong one.

If all of those outsourced jobs were suddenly transported to the US, and employers forced to retain them, then either the cost of innumerable products would go through the roof, or corporate profits would drop through the floor. Not going to happen, the notion is ridiculous even as a thought exercise.

President Obama has not yet called me to ask my opinion, but when he does, I would tell him to listen more and talk less while in Asia. Not only will the locals appreciate this, he will learn about how the world really works today.

The President seems to be a highly intelligent, thoughtful person. Should he learn from Asia, rather than try to dictate to it, he'll figure out how to make America stronger. Hint: encourage education and entrepreneurship...and no more memories of lost times.

More Stories By Roger Strukhoff

Roger Strukhoff (@IoT2040) is Executive Director of the Tau Institute for Global ICT Research, with offices in Illinois and Manila. He is Conference Chair of @CloudExpo & @ThingsExpo, and Editor of SYS-CON Media's CloudComputing BigData & IoT Journals. He holds a BA from Knox College & conducted MBA studies at CSU-East Bay.

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