Were the stakes not so high, it would be almost funny to compare the competing analyses of why China shocked the financial world this week with a record devaluation of its currency. The experts can't seem to agree on whether Beijing's move is a sign of strength or weakness.
The official explanation given by the People's Bank of China for lowering the value of the yuan against the U.S. dollar, and overhauling its mechanism for setting the daily exchange rate, is that it aims to increase the "market orientation" of the currency. On its own, that should build confidence that the Communist regime is ceding some of its control to the free market.
China has strong incentives for loosening its grip. Pride is one of them. China has long sought the respect it feels it deserves as the world's second-biggest economy.
A concrete sign of China's status would be the yuan's designation as a global reserve currency by the International Monetary Fund. The IMF called China's move this week a "welcome step" in letting market forces prevail, but essentially concluded that the devil is in the details of how Beijing rolls out its currency market reforms in the future.
This is China, after all.
Only weeks ago, the world's leading practitioner of authoritarian capitalism (emphasis on authoritarian) attempted to halt a stock market slide simply by decreeing a halt in trading. The regime's reflexes are interventionist and autocratic.
The economic and financial turmoil hitting China has only increased since then.
Growth is sputtering, exports are tanking and capital is fleeing the country. Those factors alone would put downward pressure on the currency, were it to float freely, making it harder to separate the official rhetoric from the reality behind this week's devaluation.
With fears of a Chinese meltdown already looming large, many China watchers inevitably speculated that the yuan's drop was the first of a series of engineered declines meant to stoke exports.
If so, it could destabilize the entire global economy and unwind China's efforts to break its export-led growth model and boost domestic consumption.
Asian economies that had been fast replacing China as a low-cost producer of consumer goods, such as Vietnam, Thailand and Malaysia, could collapse.
The U.S. trade deficit would surge as a strong greenback fuels imports, but sinks exports. Wal-Mart shoppers in Boise might see prices drop. But such deflationary pressures would only make the job of the U.S. central bank harder.
Members of the U.S. Congress are not reserving judgment.
"For years, China has rigged the rules and played games with its currency, leaving American workers out to dry. Rather than changing their ways, the Chinese government seems to be doubling down," New York Democratic Senator Chuck Schumer said this week.
China is the main target of legislation, now before Congress, that would punish countries that manipulate their currencies. Many Democrats are tying their support for the Trans-Pacific Partnership, a top economic priority for President Barack Obama, to passage of the bill. China is not currently a TPP country, but it's widely thought that it would want to join later.
Ohio Republican Senator Rob Portman said the Obama administration's "refusal to take on China's currency manipulation is enabling Chinese workers to have an unfair advantage over Ohio workers. Any negotiations on the Trans-Pacific Partnership must prioritize combatting currency manipulation by our foreign competitors." Mr. Portman's Republican South Carolina counterpart, Lindsey Graham, added: "Whether it is currency manipulation or cyberattacks, President Obama seems unwilling or incapable of standing up to the Chinese when they cheat."
Those arguments are weakened by the fact that there are good reasons China's currency might need to fall right now, even without the help of the Chinese central bank.
The yuan's soft peg to the U.S. dollar has meant it has risen in sync with the greenback, despite a weakening Chinese economy. But uncertainty about just how low the Communist regime wants the currency to go is rattling more than rust belt politicians whose re-election hopes are partly tied to the revival of U.S. manufacturing.
On Thursday, Chinese central bank vice-governor Yi Gang described as "nonsense" a Reuters report that "powerful voices" within the government were pushing for a 10-per-cent devaluation – about three times the amount the currency has fallen this week. Only time will tell.
To Europe's debt crisis and the commodity bust, add China's inclusion (intentional or not) in a global currency war to the list of developments threatening to tip the global economy into chaos.
The United States is no longer the only elephant Canada has to worry about rolling over.
Konrad Yakabuski