Not content with this week’s sanctions against Russia, North Korea, Iran, and Venezuela, Trump is also going for China, although the expected announcement didn’t materialise this week. The claim is partly that China is a currency manipulator, although the US is the biggest currency manipulator in the world, courtesy of the Federal Reserve interventions in bonds and equities. It should be noted that China’s stated objective is to hold its currency stable against a trade-weighted basket of currencies that is basically all major currencies, excluding the US. Meanwhile as Foreign Exchange (FX) gamblers play their games with currencies, the US Dollar has seen a massive 7% devaluation in the last 3 months:
This, of course, puts pressure on Japan, Europe, UK to maintain their exports against this US currency manipulation, meaning more stimulus in the form of Central Bank support for bonds and equities, and round we go again. This is called “circling the toilet” or “race to the bottom” or “making America great again”.
One reasonable response to this by China could be a month long boycott of trade with the US, which would see the shelves in Walmart stores empty and protests on the steets (see the current state of Venezuela to see what that is like).
Trump threatens China with new trade war, Beijing appears unmoved
5 Aug, 2017
Amid expectations of the US launching investigations into China’s alleged theft of American intellectual property as well as unfair trade practices, Beijing appears unmoved by the imminent probe while US businesses fear reprisals in case the row unintentionally escalates.
Washington is expected to soon announce investigations into how China tackles copyright protection, protectionism and market access. President Donald Trump reportedly intents to use a provision in the Trade Act of 1974, which would allow him to slap tariffs and other barriers on Chinese products while circumventing the World Trade Organization (WTO) mechanisms for redressing grievances.
A White House announcement of the measures was expected Friday but has been postponed.
US ‘bullying tactics’
The Chinese reaction to the anticipated investigations was calm. Beijing’s commerce ministry said Thursday that China was willing to work with the US to settle their differences, saying trade benefited both parties.
“The China-US trade relationship is… mutually beneficial. Cooperation would benefit both sides and fighting would hurt both,” ministry spokesman Gao Feng told journalists.
He added that conflicts over trade practices should be resolved through the WTO and downplayed the concern over China’s handling of intellectual property rights of foreign companies.
Chinese state media, which often relays Beijing’s position in more strong terms, was more forthcoming. In an editorial, the China Daily warned the US against politicizing bilateral trade, addressing the connection made by Trump between the economy and what he called Beijing’s failure to help in solving the North Korean question.
“Imposing tariffs and restrictions on Chinese imports would serve the interests of neither side, since China will have no choice but to take retaliatory measures, thus paving the way for a trade war,” the newspaper cautioned. “Both sides should work hard to avoid that damaging eventuality.”
The Global Times, the tabloid off-shoot of the official People’s Daily, ran expert commentary which called the US’ tactics “bullying”.
“This is bully negotiating tactics from Trump, trying to pressure China into meeting its unreasonable demands that only benefit the US,” Mei Xinyu, an associate researcher at the Chinese Academy of International Trade and Economic Cooperation under the commerce ministry, told the newspaper.
“China is not what it was two decades ago. Today, we are the world’s second-largest economy and largest trading nation. There are many tools we can use to deal with the US.”
Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies, which is also affiliated with the Chinese commerce ministry, suggested that the US president is picking a fight with China “to make good on campaign promises and ease pressure”.
On his campaign trail, Trump threatened to slap a 45 percent tariff on all goods from China while branding Beijing as a currency manipulator.
After his election, there was much speculation in the Chinese media of an ensuing trade war with the US. Some outlets ran extensive explanations of how China would be invulnerable in such a conflict and could hit back at the US with certain measures, such as buying Airbus aircraft instead of Boeing or placing tariffs on US soybeans and maize.
However the economic tit-for-tat between world’s two largest economies failed to materialize. After meeting China’s President Xi Jinping in April, Trump made it clear that he would rather pressure Pyongyang together with Beijing than threaten Chinese trade.
Meanwhile American companies are worried about how the Trump administration would handle the promised investigations, Reuters reported.
“Companies, I think, are rightly concerned about how this administration will handle any sort of enforcement action or investigation given that we have not seen this administration be particularly nuanced or strategic in its approach,” a technology industry source who asked not to be identified before an official announcement of the probes, told Reuters.
“We’ve been talking with (National Security Council) but frankly for us even, it’s difficult to determine exactly who are the decision makers,” the source said. “We just don’t know exactly what the mentality will be or… the decision making or calculus.”
Concern over potential fallout from the US move was also expressed by the head of WTO, the organization risking to be undermined as a global arbiter of trade conflicts.
“It is easy to see where such chain reactions begin… Should a trade war break out, countries will in the end be worse off than when the dispute begins,” Roberto Azevedo told a trade forum Wednesday.
Beijing’s restrained response to Trump’s trade policy makes sense when you consider the inner workings of the Chinese economy, investor Charles Ortel explained to RT, since it would not be in a position to ‘win’ any kind of trade war with the United States.
“The situation inside China is not as monolithic as some suggest – there are wide gaps between economic reality for the top and then for the bottom 80-90 percent. And I would not and do not presume how to ‘instruct’ the Chinese leadership how best to manage their local realities,” Ortel wrote in an email.
“But, I do believe, fighting with the US is not a winning economic strategy because the internal Chinese market will take many years to hold realistic prospect of absorbing the goods and services presently exported to America.
So, if China wished to move forward, I believe the government could take steps that promote world peace – [such as] truly helping with North Korea, standing down against India [and] pulling back from external expansion in disputed territory – and that are in the interest of many nations, including Russia and the US.
And, if the Trump Administration saw solid evidence of such steps, I believe the rising trade frictions might cool, to an extent.”
However, Hong Kong-based investment and banking specialist Andrew Leung believes that Trump’s measures are an attempt to distract the public from his inability to resolve the problem with North Korea.
“The souring of relations with China is typical of Donald Trump’s capricious and short-wired temperament,” Leung told RT.
“As he appears to be ineffective in resolving the North Korean crisis, he is venting his anger on and trying to divert public attention to China, as if China alone can solve what basically is a deep-seated mistrust problem between Pyongyang and Washington.”
Leung also warned not to underestimate the level of economic damage China could cause the US.
“China has an arsenal of big ticket items of American imports into China which are likely to hurt American businesses very seriously,” he said. “So on the one hand China will continue to urge caution and point out a proper way to address the North Korean issue, on the other hand, China will sound clear warnings targeting big American businesses.”