Will US President Donald Trump’s recent decision to impose a 10 per cent tariff surcharge on Chinese goods worth $300 billion from September have any positive benefit for US and global economy in the upcoming period? Conversely, will such actions lead to turmoil in the global economy thus reversing a positive uptrend witnessed in recent years?
President Trump makes decisions and condemns the actions of other countries that seek to protect their economies. The negative consequences of such decisions are borne by the economies of other countries, global financial markets, daily oil prices, business owners and investors in many countries worldwide, not to mention the loss of jobs and closure of some businesses as a result of this war between the world’s two largest economies.
It is this trade war that recently led China to declare a currency war by depreciating its national currency to its lowest level in 11 years, which will increase fears of intensified trade wars, and cause the fluctuation of currencies of other countries. Once depreciated, the Chinese currency suddenly fell below the symbolic 7-per-dollar level, which some market players consider as the psychological barrier.
It is also argued that currency manipulation by China and other countries is a violation of global trade rules by granting unfair competitive privileges to exporters of products and goods, leading to inflation and declining capital flows, and has serious implications for the global market and loss of millions of jobs in some importing countries. Yet, the Chinese currency is expected to further weaken by the end of this year.
Although the two countries engaged in tit-for-tat tariffs increases recently, they agreed a truce and decided to resume trade negotiations at the recent G-20 conference in Osaka, Japan.
However, for want of radical solutions, these talks didn’t yield any results, prompting China to decide to devalue its national currency. Trump described this move as a major violation, labelling China as a “currency manipulator”, and warned the Federal Reserve Bank (US central bank) to take note of the Chinese decision. Not long ago, China had criticised Trump’s threat to impose new tariffs on Chinese exports starting September, vowing to respond with “necessary countermeasures” should Washington go ahead with the next round of tariffs. China described the US move as destructive, saying it does not want a trade war, but is not afraid to fight it, in a sign that Beijing is ready to escalate the trade war that overshadowed the growth of global economy. On the other hand, Trump has reminded the world that China did not fulfil its promises to start buying agricultural products from the US, nor did it stop the sale of some drugs, such as fentanyl, that cause the deaths of thousands of Americans annually from overdose.
Trump believes that the Chinese want to buy time until the next US presidential elections in 2020 when the new president (if from the Democratic Party) signs a fresh business deal with China. Experts believe that if the trade war continues and the two countries do not give up their delusions and shoulder their responsibilities towards the world, the trade and currency war will rage on between them in the upcoming period and cast a dark shadow on the global economy and put millions of people at risk of losing their jobs.
The Chinese policy to promote the competitiveness of its goods and products is hitting the US economy where it really hurts. China says that devaluing its currency does not fall under that and it would not target the exchange rate for competitive purposes. If the trade war continues, the Chinese economy — the world’s second largest — will be weakened, and the decline in Asian and global stock markets will have economic impacts on many investors worldwide. Overall, China’s success in freely selling its products to other countries has ignited this trade war, which now affects many other countries due to falling financial markets, oil prices and other products and decreased employment rates.
haiderdawood@hotmail.com
Oman Observer is now on the WhatsApp channel. Click here
