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President Donald Trump comments on the trade at the Granite City Works Steel Coil Warehouse, Thursday, July 26, 2018, Granite City, Illinois (Photo AP / Evan Vucci) President Trump recently tweeted that the manipulation currency was ubiquitous in the rest of the world, accusing China and Europe of manipulating their currencies, making US exports less In reality, the strength of the US dollar is mainly explained by fiscal stimulus measures , mainly tax cuts, which were paid to an already strong economy.
This would not be the first time that a trade war has turned into But opposing any one currency to others is a dangerous tactic that has historically reduced global trade and growth.
China, the European Union and others have manipulated their currencies and interest rates, that the United States is raising rates as dollars get stronger every day – which takes away our competitive edge. As usual, not an equal playing field …
– Donald J. Trump (@realDonaldTrump) July 20, 2018
Renminbi's Depreciation [19659001] Trump was the most critical of the renminbi, saying that he had "fallen like a rock".
It is true that the Chinese currency depreciated by about 8% against the dollar in the last three months. And a weaker currency makes Chinese exports more competitive and neutralizes some of the bite of US tariffs. It would be natural to assume that China is managing its currency down, but at this point, it seems more likely that market forces are behind the weakness of the currency.
Chinese growth begins to slow down on credit growth. Inflation is well below the target. With rising trade tensions, the government has cut taxes and increased infrastructure spending in order to fuel demand.
Exchange rate CNY / USD Bloomberg
The capital risk is a deterrent vol. China's disastrous attempts in 2015 and 2016 to lead the currency are still fresh. At the time, the People's Bank of China (PBOC) adjusted the mechanism for setting Renminbi rates against the dollar. This caused confusion in the market, leading to the fall of equities and other risky assets. As the PBOC tried to restore confidence, it was forced to sell $ 1 trillion of foreign exchange reserves to support the renminbi. It has not yet replenished these reserves.
For the moment, the Chinese authorities seem comfortable with allowing the markets to fix the exchange rate rather than manage it fiercely.
Trump administration expresses concern about the depreciation of the currency, which is probably the first of a series of surprises. Strong growth stimulates US demand. This will undoubtedly increase imports, with a competitive dollar that will cancel any incoming tariff. Conversely, US exports will struggle to lose their competitiveness in target markets. The net effect is an expanding trade deficit
Ironically, a quick fix to the narrowing US trade deficit is an economic slowdown. In 2009, as the Great Recession affected consumer demand, US imports fell 26% from the previous year. Exports also declined, but not so dramatically, reducing the annual trade deficit by 40% from 2008. Clearly, no one would take root in a recession to reduce the trade deficit.
As an advanced economy, the United States has more competitive advantage in providing high-end services than in producing cheap goods. At the global level, the United States has a trade deficit in goods but a surplus of services. Efforts to expand US services should receive as much attention as negotiating fair conditions for goods.
The real challenge for the Trump administration's trade program is that the US fiscal stimulus, slowing growth outside the United States, unlikely to reduce the US trade deficit. Working with allies to equalize and lower existing tariffs, and then with their support for resolving intellectual property issues with China, can yield more sustainable results.
This document contains the views of the author, but not necessarily those of Sun Life Financial.
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President Donald Trump delivers a speech on trade at the Granite City Works Steel Warehouse on Thursday, July 26, 2018, Granite City, Ill. (AP Photo / Evan Vucci )
Trump recently tweeted that currency manipulation was ubiquitous in the rest of the world, accusing China and Europe of manipulating their currencies, making US exports less competitive.
In reality, the vigor The US dollar is mainly due to fiscal stimulus measures, mainly tax cuts, which were paid to an already strong economy.
This would not be the first time a trade war has occurred. turned into a currency war.But opposing the currencies between them is a dangerous tactic that has historically reduced global trade and growth.
China, the European Union and others have manipulated the their currencies and interest rates, while the US is raising rates and stronger with each passing day – by removing our great competitive edge. As usual, not an equal playing field …
– Donald J. Trump (@realDonaldTrump) July 20, 2018
Renminbi Depreciation
Trump was the most critical of the renminbi, saying he has "fallen like a rock".
It is true that the Chinese currency depreciated by about 8% against the dollar in the last three months. And a weaker currency makes Chinese exports more competitive and neutralizes some of the bite of US tariffs. It would be natural to assume that China is managing its currency down, but at this point, it seems more likely that market forces are behind the weakness of the currency.
Chinese growth begins to slow down on credit growth. Inflation is well below the target. With rising trade tensions, the government has cut taxes and increased infrastructure spending in order to fuel demand.
The risk of capital flight is a key deterrent to currency manipulation. China's disastrous attempts in 2015 and 2016 to lead the currency are still fresh. At the time, the People's Bank of China (PBOC) adjusted the mechanism for setting Renminbi rates against the dollar. This caused confusion in the market, leading to the fall of equities and other risky assets. As the PBOC tried to restore confidence, it was forced to sell $ 1 trillion of foreign exchange reserves to support the renminbi. It has not yet replenished these reserves.
For the moment, the Chinese authorities seem comfortable with allowing the markets to fix the exchange rate rather than manage it fiercely.
Trump administration expresses concern about the depreciation of the currency, which is probably the first of a series of surprises. Strong growth stimulates US demand. This will undoubtedly increase imports, with a competitive dollar that will cancel any incoming tariff. Conversely, US exports will struggle to lose their competitiveness in target markets. The net effect is an expanding trade deficit
Ironically, a quick fix to the narrowing US trade deficit is an economic slowdown. In 2009, as the Great Recession affected consumer demand, US imports fell 26% from the previous year. Exports also declined, but not so dramatically, reducing the annual trade deficit by 40% from 2008. Clearly, no one would take root in a recession to reduce the trade deficit.
As an advanced economy, the United States has more competitive advantage in providing high-end services than in producing cheap goods. At the global level, the United States has a trade deficit in goods but a surplus of services. Efforts to expand US services should receive as much attention as negotiating fair conditions for goods.
The real challenge for the Trump administration's trade program is that the US fiscal stimulus, slowing growth outside the United States, unlikely to reduce the US trade deficit. Working with allies to equalize and lower existing tariffs, and then with their support for resolving intellectual property issues with China, can yield more sustainable results.
This document contains the views of the author, but not necessarily those of Sun Life Financial. or its subsidiaries.
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