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There is growing concern that China and the US-China trade wars will become "currency wars" as China returns the value of the yuan to its lowest level in a year. The value of the yuan fell to its lowest level (6.7891) in a year after July 11 of last year (6.7983 yuan). The United States has strongly opposed the suspicion of manipulating the exchange rate manipulator, saying that China does not artificially reduce the value of the yuan.
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# Trade wars fueled by currency war
US President Donald Trump spoke to China and the European Union through Twitter as a currency manipulator, and sparked the war between the United States and China.
Currency movements determine the competitiveness of a company's products It plays an important role. If the exchange rate rises, the price of the product will be cheap and it will be sold well. If the exchange rate is lowered, the price of the product will increase and price competitiveness will be lost.
Currencies such as the dollar and the yuan play the role of a "weapon" that represents the value of money in international transactions, so the currency war has a huge impact on the foreign exchange market. At the same time, it will provoke a trade shock by inducing foreign exchange gains and losses on business imports and exports.
The US complaint against China is in the huge trade deficit of $ 375.2 billion a year (410 billion won in 2017). To offset this shortfall, the United States imposed a 25% tariff on Chinese products and declared a currency war that warned against the intentional depreciation of the yuan by the Chinese government following the start of the war. a trade war.
Trump said: "The value of China's currency is falling as the rocks roll down." It is a disadvantage for us that the value of our currencies is rising. "
# China begins to depreciate the yuan first
In order to have a small impact on the Chinese economy in the trade war, the best way to lower the value by increasing the yuan exchange rate. If we reduce the value of Chinese products sold in the United States, we can reduce the impact even if a 25% tariff is imposed.
Thus, the currency war started with China first.
China dropped the value of the yuan by more than 8 percent in three months after the United States declared a trade war. In particular, from mid-June, the Chinese Yuan fell sharply by 4% in one month to mitigate the impact of trade tariffs on Chinese companies. The intention was to offset the tariffs by increasing the exchange rate.
# China, practically rejects the currency war
However, China shows a real rejection of the US currency war when the signs of a currency war spread.
Instead, he pulled out a "stimulus" card by boosting domestic demand and ensuring business competitiveness. The idea is to put pressure on US trade pressure of the stability of the yuan by reviving the national economy rather than the currency war.
showed its willingness to resolve the impact of trade disputes by focusing on the "fiscal policy" that will save domestic firms rather than the "monetary policy" that lowers the value of the yuan.
To do this, the government released $ 74 billion (about 84 trillion won) on the financial market in one day to put an end to the economic slowdown. At the same time, he issued a tax reduction of RMB 1,100 billion and bonds worth 1.4 trillion RMB.
As a result, the strengthening of the dollar is in a hurry. The yuan against the dollar also climbed to 6.7602 yuan. The excessive devaluation of the yuan is attributed to the possibility that the Chinese capital market could be shaken by causing a serious outflow of foreign currency capital into China.
# What will be the impact on the Korean won and the Korean economy?
If the dollar strengthens and the yuan depreciates, Asian currencies will suffer from double digits.
If China's purchasing power declines due to the weakening of the yuan, the growth of exports from Korea and Taiwan could also be banned.
If the yuan continues to weaken, which shows almost the same movement, it is highly likely that large capital outflows will occur in Korea.
With regard to the WTO, South Korea may benefit from the stronger influence of the US and Chinese trade wars for the sixth time.
The Hyundai Economic Research Institute predicts that domestic exports would fall by about 3% when the won / yuan exchange rate drops by 5% following the breakdown of the devaluation of the Chinese yuan to export in 2015.
If trade can not find a solution to the problem, conflicts between the two countries are likely to be spread by the exchange rate. In particular, it is also possible that the United States will designate China as a currency manipulator in October. We should pay attention to the rapid evolution of the US-China conflict.
Even if exports that have survived amidst weak domestic demand are shaken by trade wars and currency wars, Korea may be facing a crisis of desperation.
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