US-China Currency War Will Affect All the Developing Economies

• 08.08.2018, 19:45
•  World

South China Morning Post

Economic tension between China and the United States continue to be one of the most remarkable topics in the global economy. Mutual economic and commercial attacks between the two countries have gained a new wave after Trump's coming to power in US, conditioned by his strictly protective policy implemented.

It should be reminded that in June the US officially declared 25% additional tariffs for imported Chinese goods ($ 50 billion) followed by China's symmetric actions. Moreover, Trump promised another 10% tax increase for Chinese goods, but recently raised them again by 25%. The Chinese authorities did not hesitate to respond: they made a statement on the reduction of volumes of imports of a number of US goods.

The consequences of these mutual trade operations are not just the concern of these two economies, and it is explained not only by the fact that they are superpowers, but also by measures taken as a result of the tension. It is all about China's currency policy, which is constantly used in such situations, particularly in the form of yuan devaluation.

It should be noted that the devaluation of Chinese currency has both natural and artificial causes. The tense economic relationship with the United States as a result of which the Chinese currency has dropped is considered as natural cause. The artificial reason is the monetary policy pursued by China, and as a result, the yuan is devalued to maintain its competitiveness. It affects all other parties involved in commercial relations, including the United States according to which China has always been a dishonest partner.

It should be noted that as a result of Yuan's devaluation, Western-Asian tensions are integrated into the global economy, especially developing countries that have close commercial ties with both countries and have no economical capacities to withstand such situations. It is enough to observe the dynamics of the effects of dollar fluctuations on economies of different countries over the years.

It means that any country should work with its own monetary regulators to mitigate the consequences of the dramatic fluctuations in the exchange rates of the international currencies.