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Nobel Prize-winning economist Paul Krugman said China is headed for a “trade conflict” with the US and other western countries as tensions rise about how to rebalance the global economy, according to a Bloomberg report.

“What China is doing is functionally equivalent to having large export subsidies and large import tariffs,” Krugman, 57, was quoted in the report saying.

Krugman was giving a speech in the Free University in Berlin. “If it were doing that in the normal way, it would automatically be subject to large countervailing duties. And I think that’s going to happen at the rate we’re going.”

China is facing mounting pressure from major trading partners for a stronger yuan, with US and European officials arguing that the currency is undervalued. Some executives are also complaining about Chinese trade barriers. US steelmakers, working to block Chinese investments such as a planned venture by Anshan Iron & Steel Group in Mississippi, on Oct. 14 produced a report saying companies in China get illegal subsidies.

Group of 20 finance ministers and central bankers meet in South Korea on Oct. 22-23 for a further round of talks on how to smooth trade flows and keep the global recovery on track. Some countries say that the US also carries some responsibility, with the shift toward easier monetary policy blamed for propelling capital into emerging markets.

South Africa Finance Minister Pravin Gordhan said Oct. 19 there is a “serious danger of competitive devaluations” and “if we continue on this road, it will result in a trade war.”

Krugman, a Princeton University professor, also warned that Europe’s sovereign debt crisis, which threatened to undermine the euro earlier this year, is not over.

“Although the markets seem to have relaxed a little bit, I still don’t see how the whole Greek thing is going to work,” he said. “And Ireland is pretty dicey too.” – Source Bloomberg


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