News analysis

US-China trade: It's now more than a trade war

The depreciation of the Chinese yuan below the psychologically important level of seven to the US dollar, followed by the United States Treasury Department's prompt designation of China as a "currency manipulator", marks a dangerous escalation of the US-China trade war, with worrying implications for not only trade, but also financial and currency markets.

There are valid economic reasons for China's currency to weaken: China's economy is growing at its slowest pace since 1992; its current account surplus, which was 10 per cent of GDP in 2007, has all but vanished; and there is the trade war itself, which naturally puts downward pressure on the currency of a country faced with rising tariffs.

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A version of this article appeared in the print edition of The Straits Times on August 07, 2019, with the headline 'It's now more than a trade war'. Print Edition | Subscribe