US-China trade war: Washington now wants control of the renminbi-yuan

The US- China trade war is now taking new dimensions, touching the very financial heart of the most populous country on earth. The Washington administration has already more or less ordered Beijing to perform unbelievable structural changes of American liking in the economy. Now they say monetary issues have to be inserted in the trade negotiations, if and when they start again Steven Mnuchin, the US Treasury Secretary went even further and said it’s not at all certain, if President Donald Trump is to meet his Chinese counterpart Xi Jinping, despite the fact both of them will be in Buenos Aires next month for the G20 meeting. On top of that, at an interview with CNBC, Mnuchin said “We have been clear with the Chinese that we need to have structural changes, that we need a reciprocal trading relationship and we should be able to increase our exports by hundreds of billions of dollars”. Then, he indicated that currency issues will be included in any trade agreement between the two countries. One careful reader can find here the essence of the aggressive even unsound demands which the American administration is throwing at the Chinese. Industrial subsidies On August 27 our leading article was entitled as it follows: “US-China trade war at point of no return: Washington’s demands go beyond tariffs”. The wrapping up in that article was that, “In comparison, the Chinese system is actually more people friendly and democratic than the western arrangement which favors the banks and the bankers instead of producers.” There is more in it though. This newspaper has already scrutinized and found an empty shell in the American demands for ‘structural changes’ from China. Washington starts from wrong assumptions. It claims China is still a fully centrally planned economy, supports with subsidies its immense industrial sector and just copies western technology. All those assertions are wrong and refer to the historical past of this immense country. As for certain direct industrial subsidies, there is no country on earth which doesn’t help its productive structures with multifaceted state aid. Washington’s assertions “about misappropriation of U.S. intellectual property and the industrial subsidies Beijing freely employs”, are void of any real meaning. Ordering exports The new topics which Mnuchin just raised are the currency issues and the “need for the US to be able to increase its exports to China by hundreds of billions of dollars”. However, every first year student of economics knows that exports of that magnitude cannot be ordered. More so because China has left behind her past of fully centrally planned economy. Decisions about imports are being taken by hundreds of millions of consumers, who every day choose what kind of goodies to buy. Investors also have a lot to do with imports, but here also quality and price play crucial roles. So, what Mnuchin asks for is, most probably to his knowledge, impossible, but has something else in mind. Currency manipulation? Now, the currency issue is not at all new. The Americans have always been watching the movements of the other major currencies very carefully. The US Treasury Department conducts and publishes a relevant report twice a year. In its latest issue, last April, it said “the RMB generally moves against the dollar in a direction that should help reduce China’s trade surplus with the US and had strengthened earlier in the year”. No need to comment on this. Obviously, if there is an option for Beijing to direct the parity of the RMB / Yuan with the dollar, they use it to cut down the Chinese trade surplus with the US. Not to forget that the US central bank, the Fed, for more than a year has being steadily raising the dollar interest rates and is expected to continue doing so, despite heated objections from the White House. A logical result is then a steady strengthening of the dollar, making the American goods more expensive for foreign buyers. So, the White House administration is totally wrong in reprimanding Beijing about currency issues. As for including monetary aspects in a possible trade deal between US and China, the ball is in the American court. The US has to finally decide if they really want to seriously discuss about one. Adding new problems every now and then, to an already dangerous confrontation between the two largest economies of the world, betrays no willingness to continue trading. It’s rather an infallible sign of isolationism.