The trade war between the US and China has dragged on for more than a year, and it’s starting to turn into a brewing currency war, analysts are saying.
It’s always been serious. Now it’s starting to get scary.
The unpredictable escalation in President Donald Trump’s trade war with China threatens to involve other countries and raises the risk of a global recession.
With neither President Trump nor Chinese President Xi Jinping willing to back down, US-China trade tensions could swiftly erupt into a full-blown trade war. China’s own Ministry of Commerce warned that the dispute may even lead to “the largest trade war in economic history to date”.
When companies across the world lose confidence or certainty about global trade policies, they tend to postpone plans to invest, expand and hire. Spread across the global economy and over time, those trends can inject more volatility into the stock market and trigger a severe economic downturn.
Is your supply chain at risk?
Beijing’s central bank the People’s Bank of China (PBOC) allowed its currency to drop sharply on Monday to the weakest level in more than a decade.
On 5th August the US Secretary of the Treasury Mnuchin declared that China is a Currency Manipulator, after the yuan sunk to 7 against the US dollar. The yuan is at its lowest level in 11 years and has been calculatedly sunk in clear retaliation to the new punitive tariffs threatened to apply on the rest of Chinese imports.
The declaration by Mnuchin is an accusation that China is manipulating its currency to gain unfair competitive advantage in international trade.
Capital Economics Senior China Economist Julian Evans-Pritchard said by linking the yuan’s devaluation to the latest tariff threats, the PBOC has “effectively weaponised the exchange rate, even if it is not proactively weakening the currency with direct intervention”.
China must make substantial changes to its economic policies or it will face detachment and isolation with its largest global trading partners. We are beyond the point of no-return to the US-China economic and trade relationship that existed before Trump, which created the conditions for China’s mercantilism-powered rise.
Frightening for businesses reliant on China for their supply chain.
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