The U.S.-China trade conflict shifts to currency terms

My neighbors always listen to good music, irrespective of their wish. Washington continues doing what it wants and is still monitoring the black list, consisting of 6 countries, which can be labeled currency manipulators. Before the U.S. Treasury report was published, the market had been worrying that China would get a currency manipulator label. It dodged a bullet, although Steve Mnuchin criticized PBOC for lack of currency transparency, resulted from currency interference. The yuan price to dollar has been 10% down during the past half-year, getting on the U.S. officials’ nerves; however, the U.S. leniency towards China can be thought its willingness to reach a compromise in the U.S. trade wars with China, as the presidents of the USA and China are going to meet in November.

The most dangerous criminals wear ties, rather than tattoos. The USA hasn’t changed the rules; two out of three points don’t allow it to label China a currency manipulator; but it seems to have given China the last formal warning. Washington has noted that the yuan devaluing provides a competitive advantage to China, and the USA won’t put up with anyone, playing unfair and ignoring the rule. The U.S. rules. Which, by the way, have been violating for decades, and it is time for justice now. So, if China pretends to be fighting with an aggressor, the U.S. ties to look like an opponent of injustice. Each side has its own truth. Each seems to be honest. But everybody knows that a man is honest if he has failed to deceive anyone.

It is remarkable that the market believes China to be willing to stop the yuan devaluing; but the USA usually worries about the countries that weaken their local currencies deliberately. After all, all means are relevant in trade wars. And Washington easily finds someone to blame. It doesn’t matter that China’s GDP growth pace has hit its lowest level for almost a decade; that the People’s Bank of China eases its monetary policy; that Shanghai Composite loses a quarter of its value, and the capital inflow in China’s stocks and bonds is down to $3 billion in September, from $18 billion in August. Under such condition, any local currency will look weaker. And the yuan is no exception.

I must admit that the US-China trade battle features quite a lot of puzzles and paradoxes. Despite the huge import tariffs, China’s export makes it contribution in the GDP growth; and the financial markets are not that responsive to the conflicts deescalating, China’s stock indexes crash and the yuan devaluing. They responded in a completely different way in August, 2015 and in early 2016. Can investors think that the U.S. attacks on China won’t do much harm the to Asian economy? I think Donald Trump can be better described by the phrase like, “Don’t be afraid, he never bites, he swallows right away”. Beijing hasn’t yet realized all the future results. That takes time.


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Currency Wars to Come

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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