China has become the second largest economy in the world, trading (and indeed out-trading) with the big boys of capitalism, but it remains a single party communist state where, traditionally at any rate, capitalists are the enemy in a class war. With this schism deep in the Chinese make-up, it is perhaps easier to see why China doesn’t always feel compelled to abide by the rules of the game.
America has fought shy of calling Beijing a currency manipulator as this would trigger a mandated response in the US which may only serve to make matters worse, but anybody that follows the fate of the Yuan and Dollar for any length of time can readily confirm that the Chinese currency follows the Dollar closely, a trait not seen with other major currencies and the Greenback. Officials in the US have long hinted that the Yuan remains significantly undervalued, giving it an unfair advantage in importing markets where its goods are therefore less expensive. A rise in the value of the Dollar has lifted the Yuan somewhat against the other majors, but the fact reflects US Dollar strength rather than a revaluation against the Yuan per se.
China is also accused of “dumping” goods into other economies to gain market share with the costs of the items lower than market forces should dictate – photovoltaic cells and steel spring readily to mind. The plight of the European steel industry and, notably, the UK rump steel industry in particular, has been of great concern lately as the slowdown (no, that tends to suggest that it had been going faster at some point!), well, continued torpor, of the global economy has put downwards pressure on commodity prices, including steel. Moves by the EU to press for a hike on the tariff applied to Chinese steel from 9 to 66% were blocked by the UK government on the grounds that they didn’t wish to see the price consumers paid for steel rise.
The USA imports relatively little Chinese steel, but as the nation gears up for a presidential election this year, concerns over dumping could no longer be ignored. The US has slapped a 522% tariff on Chinese steel products and applied a more modest 71% hike on Japanese- produced cold-rolled steel – Japan and the US enjoy a warm trading relationship: Brexiteers take note! The value of Chinese cold-rolled exports to the US is estimated to be worth about $270 million.
This move could be the just the first move in trade skirmishes (if not war) between the US and China at a time when international trade is likely to be on the domestic US radar more than ever.