August 13, 2019
Anna Murray
Economists estimate that China’s economic transformation as the world’s factory has led to the disappearance of more than a million American manufacturing jobs. This manufacturing sector employs tens of millions of people. Until very recently, US President Donald Trump has declared to impose a new 10% tariff on US$300 billion worth of Chinese products from September 1. Trump has blamed China for not buying enough American agricultural goods as had been agreed to as well as for failing to stop the export of illicit fentanyl products into the US.
Amid escalating trade tariffs from the Trump administration, China’s currency, the renminbi (RMB), fell to an 11-year record low on August 5. China’s central bank, the People’s Bank of China, set its official exchange rate at RMB7.0039 yuan per US dollar, the weakest value since April 21, 2008.
After the exchange rate weakened below RMB7 yuan to the US dollar, the US Treasury Department announced on August 5 to label China a currency manipulator and criticized China had “a long history of facilitating an undervalued currency” and had devalued its currency in recent days. The US government could use the label to justify further actions on China, including higher tariffs and sanctions. The People’s Bank of China responded to the US’s move and argued it’s “wilful unilateral and protectionist behavior”.
The US Treasury Department accuses China of a weaker yuan making Chinese exports cheaper to buy with foreign currencies, which deliberately gains an unfair competitive advantage in international trade. But regarding the currency manipulation charge against China, the International Monetary Fund, which governs the international guidelines on currency, just determined that China’s currency was fairly valued. Most economists consider the US currency manipulator designation is mainly symbolic but will intensify trade war with China. The senior fellow and director emeritus at the Peterson Institute for International Economics, C. Fred Bergsten, commented: “The trade war has now become a currency war.”
Photo:Webshot.