China and America: Five points explain the economic war between the two giants

China is threatening to devalue its currency in return for the United States pushing the International Monetary Fund (IMF) to censor it as part of a new round of trade war between the two countries that threatens to use its existing weapons.

The Spanish newspaper Periodico published a report in which I talked about a number of points that can clarify the truth of that economic war.

1. Is China about to enter a currency war?
The Chinese central bank has decided to allow its currency to cross the seven-yuan barrier per dollar, which may understand that the two countries cannot reach an agreement on trade disputes, especially after the US Treasury designated China as a currency manipulator.

"We expect the Chinese authorities to keep their currency relatively stable at current levels, we don't expect any significant depreciation," said Esti Dwek, director of international strategies at Natixis Investment Management. "We believe China will retaliate if Washington imposes new tariffs in September."

2 - .. And how to control the yuan?
The Beijing government always favors a fixed exchange rate. However, the Chinese central bank sets a price for the yuan per day, which moves up and down depending on the reality of supply and demand.

These factors lead to the decline and rise in the price of the Chinese currency, and here the central intervention usually so as not to affect this price set.

In the case of increased external demand for the yuan, for example, its value rises in light of the large buyers, but if this happens, the central bank will print more banknotes until the volume of supply and exchange rate decline again.

This applies to all central banks in all countries, as they all have mechanisms to influence the value of their currency.

3. What are the consequences of currency manipulation?
If a country is categorized as "currency manipulation," it will have significant international implications, because it means it is accused of engaging in unfair trade practices.

Through this classification, the United States requires the IMF to conduct additional and in-depth supervision of the Chinese economy and its exchange rate management.

On the other hand, the weakening of the yuan allows the export of more Chinese products, which have a great competitive advantage at the price level, which China has always benefited from and considered as a commercial weapon in its hands.

What are the limits of this confrontation?
For now, analysts say, there is no motivation to convince Trump to abandon his hostile tone toward China.

In addition, the US president seems to be counting on the Federal Reserve to mitigate the economic risks associated with the depreciation of the currency, giving him more room to act in this economic conflict.

Trump is in the process of campaigning ahead of the November 2020 election, observers say.

Since the date is still far away, there is no reason why he should seek to resolve this confrontation or claim victory.

Is Trump distracting?
According to experts, the president has decided to divert attention to the trade war with Beijing, to avoid the harsh criticism of him since last weekend's massacre in Ohio and Texas that left more than 80 people dead and wounded, which Trump offered to criticize over an immigration policy adopted by the United States.