With Chinese economic policy now serving as a model for other Asian countries, Japan was faced with a stark choice: back United States criticisms that China is artificially keeping down the value of its currency, the renminbi, or emulate China’s approach. It is a sign of the times that Japan chose to follow China at the cost of irritating America.

Japan’s action suggests that, in the aftermath of the recent financial crisis, the dominance of free-market thinking in international economic management is over. Washington must understand this, or find itself constantly outmaneuvered in dealings with the rest of the world. Instead of obsessing over China’s currency manipulation as if it were a unique exception in a world of untrammeled market forces, the United States must adapt to an environment where exchange rates and trade imbalances are managed consciously and have become a legitimate subject for debate in international forums like the Group of 20.

my two cents

The new normal in world economics is going to be a bruising realpolitik, where economic force will be wielded to the nationalistic benefit of independent countries, like Japan’s emulation of Chinese currency manipulation, or groups acting in concert, like OPEC. The US will have to fall into line, since its ability to control events is diminished.

via underpaidgenius