China has longer staying power in the worsening US-China trade war: Analysts4 min read . Updated: 06 Aug 2019, 07:34 PM IST
- China could also further harden its stance at the multilateral trade front, said a trade envoy
- China also announced that it is going to halt all purchases of US agricultural goods by its state-owned enterprises
Geneva: As the US-China trade war rapidly turns into a full-fledged economic war after Washington’s designation of China as a currency manipulator on 5 August, China appears to have an upper hand in holding out longer than the US, say analysts.
“In terms of time frame, I would argue China has greater pain tolerance," says Eric Robertsen, head of global macro strategy at Standard Chartered Bank, in an interview to CNBC on 2 August.
“I don’t think Beijing is going to really respond to this name-and-shame approach by the Trump administration… I think this in and of itself is an empty threat," Stephen Roach, a former investment banker and now an academic at the Yale University, told the CNBC “Squawk Box" on 6 September.
If the US continues to escalate further on the tariff front or impose any other sanctions on China, “they have plenty of options to consider as the recent move in the bilateral exchange rate demonstrates," Roach maintained.
China could also further harden its stance at the multilateral trade front by fiercely opposing the US’ move to deny special and differential flexibilities to China and other major developing countries such as India at the World Trade Organization, said a trade envoy, who asked not to be quoted.
The US along with the European Union and Japan want to bring new disciplines on industrial subsidies, mandatory transfer of technologies, and stringent transparency and notification procedures against China at the WTO. But the worsening bilateral trade war between the two largest economies are bound to muddy the waters on all fronts, particularly the multilateral front, the envoy suggested.
After China allowed the yuan to fall below the 7 to the dollar benchmark for the first time in over a decade, the US promptly designated China as a currency manipulator on 5 August on grounds that a weaker yuan will help Chinese exporters.
The Yuan, however stabilized on Tuesday, supported by signs that Beijing might not permit a steep depreciation, according to the Wall Street Journal of 6 August.
The US dollar was weaker against major currencies, including the euro and yet, but it was higher by 1.5% against the Chinese yuan.
On Tuesday, China also announced that it is going to halt all purchases of US agricultural goods by its state-owned enterprises. China threatened that it would impose additional tariffs on US farm products purchased after August 3.
China’s ministry of commerce held President Trump responsible for the escalation of trade measures that ‘seriously violated the consensus reached by the US and China" at the G20 meeting.
The two sides are now bogged down in a war of words.
In response to President Trump’s decision on 1 August to impose an additional 10% tariff on $300 billion worth of Chinese goods on grounds that he remains dissatisfied by the lack of progress in trade talks, China also resorted tit-for-tat trade measures simultaneously, sending a signal that it will stand up to every measure imposed by President Trump.
Global markets went into a tailspin on Monday as the yuan became the latest flashpoint in the escalating war of trade and economic nerves. The Dow Jones fell by 750 points on Monday following the drop in yuan. The US Treasury Secretary Steven Mnuchin, who is reckoned to be a China-dove all these days, “announced that he has determined China is manipulating its currency to gain an unfair trade advantage – something President Trump argued earlier in the day on Twitter."
“China dropped the price of their currency to an almost a historic low," the President wrote. “It’s called “currency manipulation." Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!"" –President Trump tweeted on Monday.
Immediately, the US Treasury secretary announced that “in recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past."
“The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade," the US treasury secretary maintained.
But the designation of China as a currency manipulator has only a symbolic value and do not pose any immediate consequence for China. Under the US, the Treasury secretary is required to initiate negotiations with China and simultaneously engage the International Monetary Fund (IMF) to eliminate China’s the unfair competitive advantage.
“This justification provides political cover since the currency manipulation charge has long been levelled at China by Chuck Schumer, the top Senate Democrat, and other Democrats," according to Eswar Prasad, an academic at the Cornell University.
Although the US President repeatedly maintained that the US consumers have not been affected from the tariffs he has already imposed on China and that the Chinese had to pay billions of dollars because of the tariffs, Trump maintained that Beijing’s manipulation of its currency keeps the cost of Chinese goods low.
However, China’s decision to terminate its purchases of US farm products is another strike at US farmers already staggering under the combination of retaliatory tariffs and bad weather, according to Washington Trade Daily of 6 August. “ American Farm Bureau Federation President Zippy Duvall called China’s announcement “a body blow to thousands of farmers and ranchers who are already struggling to get by," the WTD reported.