Editorial Notes

Short step from a trade war to a currency crisis: The Statesman

Not many will readily buy US President Donald Trump's argument that the recent depreciation of the Chinese currency " yuan" is tantamount to "currency manipulation".
Not many will readily buy US President Donald Trump's argument that the recent depreciation of the Chinese currency " yuan" is tantamount to "currency manipulation".PHOTO: REUTERS

In its editorial, the paper says that the sudden decision to label China a currency manipulator is yet another case of US President Trump according the short shrift to norms.

NEW DELHI (THE STATESMAN/ASIA NEWS NETWORK) - Donald Trump being Donald Trump, it is unlikely that he will play on the back foot.

The US President may not have staved off a looming crisis in bilateral trade with China, but on Tuesday (Aug 13) he may have contributed to a lowering of tensions.

Chiefly, the US has narrowed the list of Chinese products it plans to impose new tariffs on as of September 1.

Specifically, it has deferred levies on cellphones, laptop computers, toys and other consumer goods until after the "stores stock up for the back-to-school and holiday shopping seasons".

The conciliatory tone was struck in the face of mounting pressure on President Trump from consumer groups over the harm that has been caused to global trade by the continuing trade war between the USA and China.

And yet it is but a short step from a trade war to a currency crisis. Not many will readily buy Mr Trump's argument that the recent depreciation of the Chinese currency " yuan" is tantamount to "currency manipulation".

This is the first time in 25 years that the US has levelled the charge. Indeed, its President has lent what they call a "dismal dimension" to the trade dispute with China by imposing a 10 per cent tariff on the $ 300 billion (S$416 billion) worth of imports from China that he had so far left untouched.

The assertion has been greeted by Beijing with the lowering of the yuan to the threshold of seven to the dollar. Global stock markets have plummeted in the immediate aftermath.

Global trade disruption is a symptom of a deeper malaise. It is more than obvious that the US China tariff war and the trade war between Japan and South Korea have resonated in the echo chambers beyond the Atlantic and Pacific oceans.

 
 
 
 

The task of evaluating whether America's trading partners manipulate their currencies devolves on the US Treasury Department, the criteria coinciding with internationally agreed yardsticks for manipulation under the articles of agreement of the International Monetary Fund, theoretically the one sided intervention by the country to push down the value of its currency and a large current-account surplus.

Neither of these apply to China at the moment. The sudden decision to label China a currency manipulator is yet another case of Trump according the short shrift to norms.

In the reckoning of economists, currency wars are less damaging than trade wars. Whereas a currency war is likely to result in looser global monetary policy, an all-out trade war could derail the global economy and financial markets.

Ergo, the real significance of the US decision to label China a currency manipulator is that it represents a further escalation of the two countries' avoidable trade war.

The narrowing of the list earmarked for increased tariff comes in parallel with the charge of "currency manipulator". Is there a carrot and a stick somewhere?

The Statesman is a member of The Straits Times media partner Asia News Network, an alliance of 24 news media entities.