Juncker deal has nothing to do with free trade: German MP

Posted July 31, 2018

Over the past three months, the yuan has depreciated by around 7.7 per cent in value against the United States dollar, with most of the fall taking place in the few weeks since Donald Trump confirmed he would slap a 25 per cent duty on 1,100 imports from China.

Amid meetings between the French President Emmanuel Macron and farming unions, Mr Le Maire said that agriculture ought to remain outside of any US-EU trade negotiation. Trump tweeted on July 20 that "China, the European Union and others have been manipulating their currencies and interest rates lower". And we don't want this, we don't want this to happen, we didn't ask for this.

Gains from modest currency depreciation "will not be effective for relieving the pain facing China's tech sector", Yao said. "I think this has really helped Trump to understand that these tariffs can be potentially harmful and he has now reined in and we are moving towards a more positive situation", she said.

Republicans and others have told Trump that the tariff wars are starting to hurt business people, including farmers and other key sources of votes in the November congressional elections. "The continent's failure to integrate into global value chains is, in this regard, insulating it from potential problems", says John Ashbourne, Africa economist at Capital Economics. That might not sound a lot. We can expect clearer signs of the impact by the end of the year, although generous tax cuts and other factors may compensate some metrics, making attribution hard.

In an era of low and even negative interest rates, the extra return available on Chinese bonds was an enticing prospect for many worldwide investors.

However, if he changed his mind, and doubled down on his hysterical rantings, it wouldn't be the first time.

A stable yuan partly helped to bring about a rebound in Chinese exports. But anything more than a moderate depreciation of the currency will wipe out those gains, and turn their investment into a loss. But China pegs the Yuan to the Dollar, so when the USD was weakening, the Yuan was weakening together with the USD. It wouldn't be long before Chinese savers and companies joined in. "But for the most part producers haven't lost money yet this summer".

In short, a policy of deliberate depreciation could quickly develop into a feedback loop of capital outflows and runaway currency weakness which could have grave repercussions both within China and overseas.

And overseas, a steep fall in the value of the yuan would put many of China's Asian neighbours in an impossible economic position. China also happens to be the third largest global importer of US pork - so a drop in demand for USA pork in such a large market will hit pig farmers hard. Trump's tariffs and the countermeasures they provoked wreck the plans of domestic and foreign companies alike. Many are planning to store this year's harvest until it becomes profitable to sell, though that option is not feasible for those with no storage or large operating expenses. In either country, currency depreciation could lead rapidly to a nasty funding crunch.

"Thankfully, we seem to have been rescued from the brink and there will now be plenty of optimism that the US-EU confrontation will cool off". And of course, Beijing could kiss goodbye establishing the yuan as a regional trade and reserve currency.

The United States signaled on Thursday it is set to push ahead on trade talks with Canada and Mexico after agreeing to suspend hostilities over tariffs with Europe in a fragile deal that may clear the way for renewed pressure on China. Over the second quarter of the year, the USA dollar strengthened by around 7 per cent against a basket of developed economy currencies including the euro and the yen.

Anecdotal responses include Harley Davidson's decision to move production overseas following the 33 percent tariff Europe slapped on US motorcycles, a response to Trump's tariffs on imported steel and aluminum.

Perhaps Trump thinks that because he can impose tariffs on more goods than the Europeans, the US will win the game. If they do - thankfully - the feared currency war will be over before it has even begun.