If the currency war gives rise to a trade war there could be one unexpected beneficiary: the environment.
And no, this is not simply because a round of tariffs would suppress global trade and economic activity disastrously, thus cutting back on the carbon emissions that cause global warming.
A trade war and the tussle over resources that may imply could prompt emerging markets, particularly China, to make a hard push for lower emission green sources of energy. For China this would kill two birds with one stone, putting to use domestically some of the trillions in savings now distorting the global economy and helping to secure its energy future in what may be an economically hostile world.
That there is now a currency war underway is clear. Japan, Korea, Brazil and a number of other smaller countries have intervened either directly or via policies to control the rise of their currencies, while pressure on the U.S. administration to bring about meaningful compromise from China on its yuan is intense and rising.
As Albert Edwards, strategist at Societe Generale in London, points out, the confluence of high unemployment, manipulation of its currency by China and 42 million Americans receiving food stamp assistance could easily bring on outright trade conflict.
This would be an economic catastrophe but would also hasten and intensify the rising competition for secure resources, both energy and other types.
China denied a report that it would cut quotas on the exports of rare earth metals by 20 percent next year. China, which mines about 90 percent of the rare earths produced globally, cut its second-half export quota by 72 percent this year. Rare earths are used in a variety of critical manufacturing processes, including the production of hybrid cars, wind turbines and some missiles. The U.S. said it was investigating reports that China had blocked some shipments of the metals to the U.S. and Europe.
The U.S. said it was investigating China's green technology industries with the World Trade Organization, saying China has provided the companies with more than $200 billion in subsidies. Undoubtedly a trade war would deal an immediate hit to energy prices but would also highlight energy security.
For many of the populous, fast-growing but energy-poor developing nations, this could serve as the push they need to commit more fully to less energy-intensive sources of energy. These require an enormous upfront investment and in terms of putting food on people's tables are less effective than coal or oil. Energy efficiency can be a path to being more energy independent, a critical concern for countries like China and India.
GLOBAL WARMING CATCH-22
George Magnus, senior economic adviser to UBS, describes emerging markets, China included, as being in a double bind when it comes to global warming. There is a tight relationship between carbon emissions and economic growth, but even breaking that by investment in green technology may not be insurance if other nations fail to act similarly.
That said, emerging markets such as China are arguably in a better position to make a massive change towards green energy.
"Emerging countries have a huge advantage over Western economies in trying to do this because they are not saddled with a century's accumulation of very non-green economic and power infrastructure," writes Magnus, the author of a new book called Uprising; Will emerging markets shape or shake the world economy?
"Low-emission technology and carbon-saving investments in emerging markets would, similarly, become locked in for the long-term."
Energy intensiveness, the amount of energy used to produce a dollar of GDP, fell in China by 15.6 percent from 2005 to 2009 but rose by 3.2 percent in the first quarter of this year.
A recently released study Harvard University and Tsinghua University in Beijing of carbon dioxide levels near Beijing since 2004 confirms official statistics that energy efficiency is impr
