A trade war could get real ugly. And no body wins a trade war. The market place will handle currency pricing as long as central banks allow the market to determine currency translation rates. Artificially pegging exchange rates mucks up the system. In the case of the US - China relationship it creates a permanent drain of cash from the US to China. And now that China is using a basket of currencies, the cash drain affects more than just the US. In a free currency market, goods made in China would become more expensive because of increased demand for the Yuan which in turn would make goods produced in the US and other places cheaper.
What would constitute proof? There is no such thing as "proof" in economics. You make an argument of cause and effect, using economic axioms, historical events, and the numbers but it's not a math or logic problem you can put a bottom line under and have it undeniably proven, like that the square root of 2 is irrational or something like that. My proof is economic truths. I thought my list showed fairly well how each item moved into the next. It is a fact that Japan's currency was drastically appreciated, economic truths say that this weakens an export-dependent economy. It is a fact that Japan pursued expansionist monetary policies to combat the economic downturn, economic truths say that this can lead to overheating and bubbles. It is a fact that Japan had a major real estate and stock bubble which then burst There is never a "proof" of causation, only correlation. That is why we must use economic reasoning to determine if causal relationships make sense. In this case, I think the causal relationship suggested by economic reasoning is sound, as the theory neatly links together the historical facts of the situation and the picture makes economic sense. If the above scenario does not seem plausible to you then I have to question your knowledge of very simple economic theory. p.s. your link won't open
Here's an interesting article. I pretty much agree with the entire article except for the last paragraph/conclusion he draws. http://www.wsws.org/articles/2010/nov2010/pers-n09.shtml I think that a gradual scaling back and return to fiscal responsibility can work.
Simple economics. It costs 60% less to set up a factory in China and which American will compete with the Chinese for labour? Bottom line, are you willing to pay 100 dollars for a toy when you can get it for 10?
The housing bubble would have been a serious problem on its own, of course. And major fraud was involved, a key component. It's just that the unregulated derivatives market dwarfs it. And similarly with Japan - they had many of the same problems with collusion and fraud in their financial system we had after the deregulation, because they never regulated as we did (in the wake of the Great Depression, lessons learned) in the first place. And just as in the US, this permitted collusion of supposedly checking and balancing financial sectors was a moral hazard, feeding their housing bubble among other bad effects.