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By Xingyuan Huang
On August 23, President Donald Trump tweeted that American companies are ordered to leave China or return to the US to set up factories.
A day later, America announced that it would raise tariffs on about $550 bln worth of Chinese exports to the US by an additional 5%.
Forcing US companies to leave China and increasing tariffs on Chinese products are part of the US pressure tactics. These acts have violated the consensus of the heads of state of China and the United States, damaged the principle of mutual respect, equality and mutual benefit, and undermined the multilateral trading system and the international trade order.
It is not constructive in any way and no one, not even the US itself, stands to gain.
The US stock market and commodity prices have responded to the news with major falls.
American people from various sectors have expressed opposition to these remarks and the international community has voiced concern about such pressuring.
China opposes and rejects such sheer bullying and pressuring tactics in trade. Increasing tariffs and decoupling the Chinese and American economies are by no means the right prescription to ease the trade friction.
Even less likely to offer the US a way out of it problems. The US should heed the views from various sectors, balance its gains and losses, and come to prudent rather than hot-headed decisions.
If the US were to further escalate frictions, China will continue to take resolute measures to safeguard its legitimate rights and interests.
China as “currency manipulator”
According to the three criteria for the definition of currency manipulator set by the US Treasury itself, the US knows very well that China is not manipulating the RMB. It also knows very well why it would force the label on China.
The Chinese Ministry of Foreign Affairs and People's Bank of China responded to the August 5 US treasury announcement labelling China as a “currency manipulator”.
On August 9, the IMF published its annual report on the Chinese economy, reiterating that China’s exchange rate is “broadly in line with fundamentals”, that is, the RMB is neither over-valued nor under-valued.
The IMF also supports China’s efforts for further exchange rate flexibility.
Reviewing fluctuations of the exchange rate from the beginning of this year to August 2, The RMB has weakened 0.9% against the US Dollar, while the Australian Dollar and the Euro weakened 2.7% and 3.1% against the USD, respectively.
This political decision by the US is yet another tool to exert pressure on China.
One may be getting used to the US withdrawing from treaties and breaking rules in the international arena. But it is beyond one’s expectations that the US would even disregard its own rules.
Former US Treasury Secretary and Harvard University Professor Lawrence Summers also believes the designation of China as currency manipulator is without sound basis. This will not only damage the credibility of the US government but also bring risks of recession to the US economy.
The RMB is traded in a floating exchange rate, which is determined by market demand and supply.
By labelling China a currency manipulator, the US has extended trade frictions between US and China to the currency sector, which would only escalate tensions, bring new uncertainties to negotiations, trigger financial market volatility, and greatly hinder the recovery of global trade and economy.
No wonder some analysts believe that the US is the root for the weakening of the world economy.
Current Chinese economy performance
China's economic fundamentals have remained stable with good momentum for growth in the first half of 2019.
Its economic structure continued to optimise and upgrade and has made positive progress in high-quality development.
GDP growth rate of 6.3% is still within reasonable range. In particular, domestic consumption has shown strong momentum, contributing more than 60% to the economic growth and playing a key supporting role.
Indeed, trade frictions have adversely affected China's economy, especially foreign trade, but China’s economy has demonstrated sufficient resilience and withstood the violent impact of trade frictions.
The Chinese economy will maintain stable and positive growth in the long term. Both the Chinese and the world economy would be better if not disturbed by the US.
Who will be the winner of the trade war?
There is no winner in a trade war. Indeed, the development of the Chinese economy has been affected to some extent.
The Chinese people are ready to fight a protracted war against outside disturbances, but it is deluding for the US leader to claim that “America is sure to win.” On the contrary, American people are first and foremost the victims of the trade war.
According to data from the US "Tariffs Hurt the Heartland” Movement, by April 2019, US companies and consumers had paid more than $22 bln in tariffs due to the trade war.
The uncertainties brought about by the trade war have dampened commercial investment and demand, reduced business confidence and capital expenditure, and dragged down America’s economic growth.
The growth rate of the American economy has slowed from 3% to 2%. In August, the American manufacturing PMI dropped below 50 to 49.9 for the first time in 10 years. Coupled with an inverted yield curve and drastic fluctuations of the stock market, these are all early warning signs of an economic recession.
Impact on Cyprus
With the momentum for world economic growth already insufficient, the uncertainties brought about by trade frictions have further increased the downward pressure on the world economy.
The WTO has slashed the growth forecast of global trade in 2019 from 3.7% to 2.6%. The OECD estimates that global GDP may lose nearly $600 bln between 2021 and 2022.
The World Bank and the IMF have repeatedly lowered global economic growth expectations.
In the second quarter, the Eurozone economy grew by only 0.2%.
In particular, “Europe’s locomotive” German economy has contracted, and the Eurozone economic sentiment indicator has fallen to its lowest level in three years, with investor confidence seriously frustrated.
A German media outlet pointed out that currently, the risk of an economic recession is comparable to the global financial crisis 10 years ago, threatening employment and well-being of hundreds of thousands of people.
Such a recession will have a catastrophic impact on social solidarity and growth prospects.
Cyprus has a highly outward-looking economy and the international economic climate is crucial to its development.
The island has just recovered from the financial crisis and its economy is about to boom.
We hope Cyprus can work with China to safeguard free trade and multilateralism, oppose power politics and economic bullying, and create an international environment conducive to an open, inclusive and sustainable growth.
Xingyuan Huang is Ambassador of the People's Republic of China in the Republic of Cyprus
http://cy.china-embassy.org/eng/
