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United States – China: the dangers of a currency war

Editorial of the "World". For the moment, the escalation is mostly verbal, but it is the worst. Leaving â € "a little â €" spinning the yuan, Monday, August 5, Beijing triggered Washington's ire, which at once formally accused China of manipulating its currency. Such a reproach risks "Seriously disrupt the international financial order and cause chaos in the financial markets"China said the following day. Trade tensions are still escalating and seem to be on the verge of a currency war, at the risk of triggering an already weakened global economy.

By allowing a decline in the yuan, whose price does not float freely, the Central Bank of China has responded to the new 10% taxes that Donald Trump threatens to impose on 300 billion dollars of Chinese imports up to ™ here saved. But we must not be deceived: in recent months, the institution has mainly worked to prevent excessive depreciation of the yuan, or renminbi (official name of the Chinese currency), likely to trigger capital outflows from the country, not the other way around. Many observers point out that the "money manipulator" charge brought by the United States comes at the wrong time, at least five years too late … |

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But what does it matter: at this stage of tension, the slightest act or the slightest word can set fire to the powder. And we can already see the spiral in which the two superpowers are likely to engage: in response to the decline of the yuan, the United States could impose new measures of retortion in PÃ © kin, who could answer by letting his money go by again or by deciding to cast reps. In return, the US president could push the Treasury to intervene in foreign exchange markets to weaken the dollar and boost the competitiveness of US exporters.

Collateral Victims

Such a maelström would force the other big central banks – starting with the European Central Bank (ECB) – to intervene in turn to support their economies. It would trigger a storm on the currencies of emerging countries, collateral victims of trade tensions.

Both countries may find common ground. But the escalation of the last days allows one to doubt it. Beyond Mr. Trump's accusing tweets and Beijing's offensives, the attitude of both parties gives rise to fears that no one will have any real intention of finding a short term agreement. Already in the run for the 2020 presidential election, Trump is betting a hard line against the Asian giant will earn him points. In the US administration, some are convinced that Chinese leader Xi Jinping's entourage is waiting for the billionaire to leave power to negotiate a more favorable deal.

If the communist regime knows that Donald Trump's attacks have a largely electioneering purpose, his position is more complex. In theory, it has enough ammunition to hold a long commercial and monetary front against the United States. In such a scenario, Europe would be the big loser. A Sino-US fight for a dollar and a weaker yuan would automatically push up the euro, hitting its industrial exports, already tarnished by the crisis of the German automobile. It would take little, then, for the Old Continent to plunge into the recession.

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