Currency war .. Can Trump break the Chinese yuan?

With the US-China trade war deadlocked, a currency war has emerged between the two rivals, says a report in the Foreign Policy magazine.

The United States has already imposed duties on almost everything except some products that are due to be taxed from December 15.

The currency markets are experiencing a war between Washington and Beijing, especially since the Chinese yuan is closely linked to the US dollar. 2% in overseas markets.

According to the writer, the yuan has fallen by more than 5 percent since the collapse of trade negotiations at the end of April.

Although this is not dangerous, especially since the Bank of England has already allowed the pound to fall more than 10% in 2016 on the back of the Brexit vote, the move is worrying.

Between 2006 and 2016, China has worked hard to strengthen the yuan as part of its successful drive to list its currency along with the dollar, euro, yen and pound in the IMF's recognized currencies.

Trade with Europe
Throughout the trade war, China has so far managed to offset the decline in exports to the US by diverting trade to Europe, which has helped the People's Bank of China to maintain stable currency reserves despite the rapid influx of the US dollar.

According to data on foreign holdings issued by the US Treasury Department, China's central bank sold about $ 80 billion of its US dollar reserves last year, in a successful attempt to slow the sharp decline of the yuan.

The problem facing China is its appreciation of its currency and international commitments and lending to development banks of the Belt and Road Initiative in US dollars.

For now, the trade war has made it harder for China to get the dollar, prompting the country to support exports destined for Europe to make up the shortfall.

On the other hand, this will not be a durable solution for China, especially if the euro continues to decline, forcing Beijing to provide more government support.

China could bypass both US tariffs and the efforts of manufacturers seeking to shift production to other countries, and even a general economic recession. But China will not be able to counter the collapse of the currency.

A few weeks ago, the Trump administration accused China of manipulating the currency to devalue its currency and stimulate exports.

Dollar peg
China's corporate sector is in a serious monetary crisis, with companies unable to pay their bills because they have not been able to pay their debts from government entities and state-owned companies on time.

China could save its economy from its monetary crisis if it pegs its currency to the dollar, but it would cause huge losses.

If China maintains a dollar peg, it will use its $ 3 trillion of foreign reserves very quickly, he says.

The fact that China pegs its currency to the dollar while maintaining about a third of its dollar reserves raises many concerns.

"In the United States, all the political talk is about the so-called 'nuclear option' in which China can get rid of the dollar (the trade war between China and the US has raised market concerns that Beijing will decide to use its US Treasury bonds that exceed 1.1. Trillion as a weapon to respond to Trump's fee).

However, from the perspective of the Trump administration and the Federal Reserve, this may be a positive development because it will depreciate the US dollar and produce modest inflation.

More worrying for the global economy is the possibility that China will have to scrap its huge holdings in euros in order to maintain the dollar. If this happens, the relatively weak euro and yen markets may be disrupted.

Unless there is a crisis of self-confidence on the part of the Trump administration, the final game of the US-China trade war should include a weaker and more stable yuan currency for China, but with slower growth and an influx of US investment into now-stalled Chinese industries such as finance and telecommunications.

The alternative scenarios that China could face are either to disengage from the dollar from the export process, or the Trump administration to turn a blind eye to the war, where he is facing considerable pressure even from within his own Republican Party to abandon the war.