How currency became a focal point of trade war between US, China

Investigators

RALEIGH, N.C. (WNCN) – The trade war between China and the United States has now turned into a currency war. Both sides are hoping their latest moves on the economic battlefield will win the war for them.

Stalled trade talks led to President Donald Trump’s latest threat — to add a 10-percent tax on $300 billion of Chinese goods.

“We’re losing hundreds of billions of dollars a year to China, and it has to stop,” declared Trump.

In retaliation to the latest round of proposed tariffs, Beijing allowed the value of its currency, the Yuan, to reach an 11-year-low in hopes of easing some of the economic damage from new taxes.

If enacted, the latest round of tariffs will be very noticeable because they’ll affect consumer goods like:

  • Electronics
  • Smartphones
  • Toys
  • Clothing
  • Footwear

“That’s a big chunk of what China sells to us,” said North Carolina State University economist Mike Walden. “They wanted to somehow get around the tariffs because they don’t want Americans to stop buying their products. One way to do that is to weaken their currency.”

But, when China lowers the value of its currency, it also makes our exports to China cost more, meaning they may buy fewer of our goods.

That’s bad news to people like North Carolina’s farmers, who are already hurting from the loss of sales.

“In the last year, production by North Carolina farmers is down 10 percent,” said Walden.

With possible new tariffs looming on Sept. 1, the Chinese have threatened further cuts in agricultural purchases.

“They said they were going to stop buying farm products from the U.S.,’’ said Walden. “That’s a big blow, especially to North Carolina.”

By mid-morning Tuesday, the China had backed off on some of their attempts to devalue their currency, which gave a boost to the markets.

“The Trump administration thinks it has the stronger hand right now because our economy is still growing,” said Walden.

He said the economic gripes this country has with China go back beyond the administration of George W. Bush. But, as the Chinese get squeezed, they retaliate.

“The Chinese negotiating stance has become much tougher,” he said.

Economists like Walden said that, at some point, both sides need to find a middle ground and come to an agreement.

It may not be the agreement the administration first wanted at the start of the trade war, he said, but it will reduce the economic tensions rattling markets and stop causing a cash drain on U.S. consumers.

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