It was not too long ago that the US President Donald Trump was promising a softening of the trade war that has been going on between the US and China. About a month ago, Trump promised that the trade war might even stop, and the agricultural tariffs that China has imposed on the US would be abated, allowing the Midwestern farmers an easier time and more income. But, things seemed to have changed last Thursday, when Trump announced some additional tariffs of around $300 Billion on Chinese imports. The tariffs were seen as a terrible decision, and many were wondering how China was going to respond. Early this morning, the Chinese government prepared and released a statement that signals that China is fully committing to the trade war that the US started. The retaliation by the Chinese government escalates the trade war from what it was before, to a protectionist battle that will be harming both economies by a whole lot.
Bans on imports, lowering Yuan
China decided to take two actions in order to make it harder for the US to last through the trade war. The first one is a ban on agricultural imports from the US. The Chinese government has requested from all of the largest agricultural companies within China, and conversely from the smallest as well, that they do not buy such goods from the US. This includes soy and corn, which is a direct reversal from the attitude that China was displaying the weekend before. Previously, the Chinese state television was reporting that there were significant imports of Soy from the US to China in June. While this news might have been exaggerated, some took this as a sign that the Chinese were open to importing more crop goods from the US. Now, with the ban, the US will be facing a much harder time selling their crops. The US farmers have already been announcing that outcry against the current crops trade situation between China and the US, this is further going to cause damage to the current administration, which seems to have gone back on their promise made a month ago to alleviate the tariffs on trade goods. It is expected that the political damage that is being created by this is intentional so that China can help ensure that Trump does not get reelected in 2020.
But, China went a little further than just banning crops from the US from being bought in China. In order to further hurt the US in their trading with China, they have lowered the exchange rate of Yuan to the lowest its been. Currently, one US Dollar buys 7 Chinese Yuan, which is an exchange rate that is expected to hurt whatever Yuan reserves US companies might have had. With a lower value of Yuan, Us might have a harder time buying the electronics and goods that they had excluded from tariffs earlier in the month. Furthermore, any company that has been selling their goods in China, and have yet failed to convert Yuan to USD by this time, such as Apple, will have made much less money than reported in their quarterlies earlier this month. Apple’s main market in 2018 was China, and this will be incredibly damaging to the income the Apple made in the mainland.
These two decisions by the mainland bureaucrats is a sign that China has given up on any potential trade deals with the US in the coming year. Instead, they will be looking to hold their own against the US and show that they are not going to be intentionally keeping their policies soft in order to keep the talks optimistic. These policies are going to be hurting the US politically and economically a lot. The markets have already reflected this, further falling and continuing the trend of decrease from the previous week.
US retaliation expected and feared
The Chinese decision to enact these two policies was announced early on Monday, which means that the US has yet to react. With the US still being in the night cycle of things, the world is wondering what the reaction will be. The expectations are that Donald Trump shall be imposing some very strict retaliatory policies. This decision is feared, even though it is expected, as it is going to be extremely damaging to the already slowing international economic slowdown. Globally, countries are facing problems with the speed of growth as people are losing confidence in economic and slowing down consumption. Europe is already at the brink of a recession, while the US Federal Reserve has already lowered interest rates in order to stop the economy from further slowing down.
The trade war has entered the full swing section of its history, and it is going to be a hard time globally. The world is looking forward to what Donald Trump will have to say and how he will be reacting to China’s decisions. The expectations are, that the reaction will be dire.