Chinese officials allowed the country’s currency to drop below the psychologically important point of seven to the dollar on Monday. Don M. Chance Professor of Finance at the E. J. Ourso College of Business at Louisiana State University, expressed his opinion about the next phase of trade dispute between China and the United States.
On Monday, Chinese officials allowed the country’s currency to drop below the psychologically important point of seven to the dollar. Many experts have argued that weakening China’s currency undercuts American producers. With this in mind, Trump knows China needs the US more than the US needs them, but US do still need them. The US has enacted some subsidies to help ease the pain, but it should also be pursuing other outlets for selling her products, such as grain, which US exports a lot to China.
China is, however, only the 10th largest customer of US grains. That means there are nine other countries who buy US grain and who generally play fair. US has tariffs with these countries, and they have them with the US. The US should cut them some deals and open up more of the market to them to make up for the China loss. Likewise, for other goods that China buys from US.
On Monday US financial markets suffered from a new round of tariffs which were implemented by Trump administration. The market has been overvalued for a while and needed some kind of shock to bring it back to reality. That said, so far today it is back up so there are clearly no long term effects, at least not right now.
As far as the next phase of trade negotiations go, Trump has long had a reputation of being a tough negotiator. China didn’t believe it until now. There is a believe China will ultimately bend. If this were an election year, Trump might bend but he has some time to let the negative effects go away before he runs again.
On possible retaliation measures, to curb the matter from getting out of control, the US has thousands of tariffs with other countries (there is a nice spreadsheet databased online that lists all tariffs item by item). There are suspicions there are a lot more products on which he can place tariffs.
Countries could stop all this craziness if they would allow free trade. Trump made that suggestion to the G-7 and they thought he was crazy. They all want tariffs. Once you have a tariff, you’re in a trade war. The US has been in that war with every country but especially China for a long time. Trump is the first one to fight back. SPUTNIK