This has caused sharp divisions between the U.S. / world opinion and China, as a number of different countries believe that the current policy gives the yuan an unfair advantage on world markets. As a result, fears are running high that a potential currency war could take place between the U.S. And China on an economic front. This is a similar situation that occurred during the Suez Crisis of 1956, as Britain was facing declining influence in the world. At which point, they would become involved in a military conflict (over the Suez Canal). While no military conflict will occur in this situation, the U.S. is facing similar challenges with China when it comes to the yuan (which increases the possibility of a currency war).

Since China, has been slow to respond to the changes, the U.S. has engaged in a policy of weakening the dollar to prevent spiraling deflation. This is problematic, because it is creating differences of opinions about the issue surrounding the yuan. As some countries (such as the EU) feel that this is causing the world is experiencing increased amount of inflation. Where, the obvious differences in how to tackle this underling problem are becoming more apparent.

Conclusion

Clearly, a possible trade war could be emerging between the U.S. And China. This is because the differences of opinions, on how to quickly revalue the yuan are leading to calls for more aggressive action. Where, the U.S. is struggling with: a large trade deficit and a stagnant economy, which are leading to a loss of economic opportunity. As a result, a shift has occurred, with the U.S. government...

This is important, because it is showing how at some point down the road, China must eliminate the dollar-based peg. Otherwise, the odds increase dramatically that a currency war could take place.
Bottom

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Chicago Format http://owl.english.purdue.edu/owl/resource/717/01/

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