The currency war between America and China .. Q&A

Abdel Hafez El Sawy

In a world governed by the rules of conflict rather than cooperation, bad scenarios become strongly and strongly seen. Adam.

But the narrow gaze and the desire to capture the efforts of others lead the major powers to adopt many of the wrong economic policies.

In view of the historical writings of the relationship between rich and poor countries, we find that there is a state of imbalance in that relationship, there is no objection for rich countries to continue and grow rich at the expense of poor countries.

Is China acting on behalf of developing countries?
Since the global financial crisis of 2008, there has been a dissatisfaction with the rules of governance of the global economic system, because the remedies practiced and put forward by America and the West to avoid the bad effects of that crisis, is to pay the bill of this crisis emerging and developing countries.

It is normal for emerging countries to invest precisely in the weakness of the economies of America and the West in order to reshape the maps of power and wealth in the world, and to run international institutions for the benefit of all.

But it did not pass easily, and the conflict between America and China began to worsen as the forefront of the global economic landscape.

We must understand that China is not fighting this conflict on behalf of developing and emerging countries, as much as it is fighting for the preservation of its wealth and the aspiration of global power and influence.

To realize the magnitude of the epilepsy and its repercussions on the global economy, we call the position of America and the European Union on the Chinese currency, demanding the revaluation of the Chinese currency for more than two decades, and accusing China of undervalued its currency to increase its share of exports.

A correct reading of the fiscal and monetary policies of America, the West and China after the global financial crisis of 2008 suggests that the currency war already exists, but in light of the so-called "Cold War".

What currency war?
In open economies and free trade, it is easy to violate the rules of supply and demand for currency rates, depreciating the currency of exporting countries in order to obtain a larger share of exports and reduce imports as much as possible, and flooding foreign markets with cheap goods that deeply hit markets and competing goods of other countries.

Production in the importing countries is paralyzed, growth and employment decline, and poverty and unemployment increase.

But in 1947, the world accepted the dollar as the main currency to settle international financial and trade transactions, and America gained more control when it abandoned the gold base in 1947. 1971, economists have since called the US currency "thief dollar."

America is pegged to its currency by 70% of the world's economies, including its biggest competitor, China. Thus, if any deterioration occurs in America's economy, its adverse effects will shift to the rest of the dollar-pegged economies.

* Printing money
There are many tools other than administrative decisions used in currency warfare, such as the so-called "quantitative management," in the sense that the state buys its domestic debt for printing money, so the money supply in the market decreases the price of the local currency, and this is what America did in 2010, where it printed 600 Billion dollars to buy its domestic bonds, in order to increase consumption rates and stimulate domestic demand.

But American savers turned the money into emerging markets' money markets and bought stocks and bonds in those markets.

Emerging countries watched these practices by doing so-called "market sterilization," by taxing short-term foreign funds to control the wave of inflation caused by the entry of American money.

The same was practiced by the EU in 2012 out of the consequences of its financial crisis, but the EU printed towards two trillion euros.

* Interest rate
Another tool that countries use in currency war is to cut interest rates by as much as zero in many European countries now, and has often been practiced by America to help curb the impact of foreign investments in US Treasury bonds, so that these funds are not a leverage on America. .

China and Japan are the biggest investors in US Treasury bonds at about $ 1.2 trillion and $ 1.1 trillion, respectively.

Has the currency war begun?
There is no zero point from which the currency war between rival states begins, and we can read the performance of currency war in the reality of the US-China conflict.

America's accusation that China has devalued its currency has existed for more than two decades. America and the European Union have long demanded that China revalue its currency, while China sees it as part of its sovereign actions. America should not comment on the failure of its economic policies to peg the value of the Chinese currency. .

With the arrival of U.S. President Donald Trump in early 2017, and adopted a program to reduce Chinese imports, and in the battle to impose tariffs on imports of a group of countries, including China; a trade war loomed on the horizon of countries and international financial institutions (the World Bank and the International Fund).

However, Trump's measures failed to curb Chinese imports, as China's trade surplus in favor of its trade with the US jumped to $ 419 billion at the end of 2018, from $ 375 billion in 2017.

According to US statistics, China's trade surplus with the US was about $ 68 billion 20 years ago, in 1999.

However, according to the economically recognized, the faster pace of currency war comes after the great escalation in the trade war, raising the tariff ceiling to reduce imports and encourage exports.

Trump may have accelerated the move, either through decisions to impose more tariffs on imports from China, or by declaring in early August 2019 that China is manipulating its currency, after China devalued its currency to its lowest value against the dollar in 11 years.

Practical practices between China and America demonstrate the activation of currency war instruments, such as currency devaluation or interest rate mechanism.

With Trump in power for a second time, he expects the currency war to intensify and jump to higher levels, assuming that US institutions approve and approve his economic decisions, which many economists criticize, as well as other global economists and international institutions.

What is the share of Arabs?
Like the Arabs in the global arena, they are paying the price of a war they did not fight.

By dispersing Arabs and their failure to form an independent Arab entity to defend their interests, and the failure of the Arab Economic Cooperation and Integration Project, the Arabs will be adversely affected by the currency war, both in its current cold form and when its roots intensify, through the following axes:

1. As seen in the conflict in America and the West, through the race to cut interest rates, Arab investments heavily in America and Europe, or in countries under the control of the dollar, will significantly reduce the value of returns on them.

2- In case of devaluation of the currencies - whether the US dollar or the Chinese yuan - the Arab economies will be negatively affected in several ways. First, the Arab sovereign funds of the oil countries - which some estimates estimated at about $ 2.6 trillion - will be devalued, which is a waste of wealth. Arabic in those boxes.

The second aspect of the Arab economies being negatively affected by the devaluation of the currencies of the conflicting countries in the currency war is that the Arab countries will continue to depend on imports from those countries because of the low price of imports, as happened in the crisis of Southeast Asian countries, where the value of their currencies fell by about 40% As a result, the Arab markets were flooded with the goods of those countries, which is very negative for projects that hope to develop and technological renaissance, or interest in productive aspects and away from rentier activities.

What about commercial protection?
Commercial school is one of the oldest schools in economic thought that fueled the conflict of commercial protection, where the school's thought to provide all facilities for exports to bring gold from abroad, and put all the obstacles on imports because the state has no gold.

This policy was practiced by America, England, France and other European countries after the Second World War, to complete its production bases and build its own sector, and then accepted the rules of free trade, after reassuring its performance in the global market, and that competition in its favor.

In 1971, France, through its practices toward the US dollar, caused America to retreat from the gold rule, which required that individuals or countries with any amounts of US dollars could go back to the US Treasury and get its gold equivalent.

What did China do?
A Chinese-American scholar, Sengh Hongbin, in his 2007 book Currency War, predicted that America would target China's wealth - with the world's largest foreign reserves in dollars - by creating a global crisis that would squander it. This has already happened in 2008.

Therefore, China was keen to distribute the risk of its reserve balance, through direct investment in Asia, Africa and America itself, as well as the establishment of the Asian Infrastructure Bank by about $ 100 billion in capital, and enter into the "Belt and Road" initiative launched in 2013, and inject China billions of dollars.

China also sought to be part of the global monetary component, adopting the yuan as a free currency for trading, as well as one of the components of the IMF's withdrawal units in September 2016.

America's fiscal and monetary policies in particular cannot in any way be read away from currency war practices.

The dollar and the clincher?
Talking about an alternative currency for the dollar for international financial settlements has long been subdued, and then came out in public at the G20 meeting, following the global financial crisis of 2008, in the presence of US President George W. Bush, and China was the owner of this demand.

Since then, China has been caught in the crossfire of American politicians and economists.

Although China has taken the lead, other countries share the same view and believe that America exports its economic problems to the world through its dollar currency.

If China succeeds in taking steps to implement its demand for the dollar on the ground, it will be the biggest indication of a real decline in American power politically, economically and militarily.

What then?
The intensification of the economic conflict - a currency warfare tool - will cast a negative shadow on the world stage for a period that may extend in the short to medium term, and everyone will pay the bill, albeit in varying proportions.

Developing countries, however, will be the biggest loser, because they will continue to depend and not benefit from increased value added to their wealth of people or natural resources.

Even if an agreement is reached to get out of this crisis, the agreements will be drafted in favor of major powers.