USA Prepares The Ground For A Trade War With China

By: Dr. Mike Campbell

The value of the US currency has dropped against all the major currencies by between 8 and 11% since the start of the second quarter. However, the depreciation against the Chinese Yuan (which only began in June) has been less than 2%. This means that the Yuan has also depreciated against all the other majors, of course. As a consequence of this, Chinese exports are cheaper in the markets of her major competitors because of the devaluation of her currency.

Of all the world’s major economies, the economic performance of China has been the strongest since the global financial crisis and the resulting recession, have drawn to an end. The usual consequence of this would be that the Chinese currency would strengthen as a result of the strong performance, but the opposite has happened.

Yesterday, the US House of Representatives passed a bill that aims to impose sanctions on countries that the US concludes are holding down the value of their currencies like, er, well China. The bill needs to pass both the Senate and get signed into law by the President yet and this is unlikely to happen until after the US mid-term elections in November.

The trade deficit between China and the US has widened in recent months and the Americans are blaming this on the cheap Yuan, at least partially. If the bill becomes law, it would allow the administration to impose trade sanctions against nations found to be undervaluing their currencies. The US also accuses China of using unfair subsidies to “dump” products in the US market. China invariably responds to trade sanctions with its own measures which is probably why the US Chamber of Commerce, for one, is opposed to the new bill.