Both U.S. and China are going to settle their troubles by means of other countries

How can I explain to my cat that it’s now his turn to provide my living? I feel sympathy for the Chinese who don’t understand why they should cut their foreign trade surplus with the U.S., but, seeing China’s economy slowing down, have to make concessions. Donald Trump, with his ‘America above all!’ policy, plans to reform the entire global economy; and he succeeds! After all, protectionism is a boomerang; retaliatory import tariffs are already pressing down the U.S. economic data. He might have to change a chainsaw for prosthesis soon!

The current trade talks feature quite a rigid position of Washington on Beijing's promises. China has been for a long time promising both to reform the market and eliminate the subsidies to fund state-owned enterprises. Now, the USA requires a confirmation: for example, to present a list of companies, receiving funding and some proofs that they will be deprived of support in future. As people say, beautiful words are good, but the real money is better. It is out of fashion to believe in promises, now, they need particular actions.

China goes on pretending to be a cat that understands nothing; shrugs the shoulders in confusion but compromises. What country will like if some other state tells it what the local currency exchange rate should be? Washington wants stable yuan. But let me ask, whether its real or nominal value should be stable? Compared to the U.S. dollar or to the basket of foreign currencies? If it is about maintenance of the current limited floating mode, then China doesn't need to do anything at all. Basically, they are likely to mean a ‘strong’ currency, saying a ‘stable’ one. The U.S. is being challenged by the results of China’s retaliatory tariffs and is trying to weaken their negative effect on the U.S. exports and GDP by means of yuan revaluing. Smart thoughts usually come after stupid things have been done!

A folk sign: if you brain heats, you won’t starve. Of course, to multiply the purchases of agricultural products, semiconductors, energy and other products is like to be left with nothing. However, if you do it at the expense of others, you may put on a fine face in a bad game. The transfer of assembly plants from Mexico and Malaysia to the U.S., bans for coal supply from Australia to China’s sea ports; they all are links in the same chain. And the process of unloading its problems on the others is to accelerate soon. Like the USA needs ‘a loader for an interesting, rewarding job, so China needs to find someone to charge. If you are big, you won’t have problems with it.

You can’t step twice into the same river, but you can step twice on the same rake. Donald Trump hasn’t learnt anything from the experience of the 1990s. So, he is still trying to ensure the US prosperous future by means of protectionism. The matter is that, although the US economy was not affected by trade wars in 2018 due the fiscal stimulus, it should definitely suffer in the 2019-2020. Isn’t it high time they packed up?

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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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