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Terry H. Schwadron

Aug. 7, 2019

Trade war fans (or haters), fasten your belts.

China has moved towards a decisive move, devaluing its currency, and likely triggering a series of countermoves and other effects that will threaten more global economic slowdown and intensify the tussle with the United States.

It is exactly China’s looseness with valuing its currency for economic advantage that is one count of what has irked Donald Trump and the American business community. By doing so in response to Trump vastly increasing U.S. tariffs on Chinese goods for export, China is making a play to offer its wares at lower prices to the rest of the world.

To Trump, this is manipulation of currency, a violation of international trade agreements and a central target of his tariffs policies, and the United States made a formal charge of it.

The People’s Bank of China, in a bluntly worded statement, tied the currency’s dip to Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.” The state-run Xinhua News Agency reported that Chinese enterprises had stopped making new purchases of American agricultural products, citing Trump’s plan to further increase tariffs on China as a “serious violation” of the consensus reached when Trump and Chinese President Xi Jinping met in Osaka in June.

In short order, it won’t make a whit of difference about who started what, and who is reacting to the other guy. Like wars of all kind, this economic warring is taking on its own values and decision-making beyond control of negotiation tables between China and the United States — a trade war for which there is no exit in sight or strategy.

The economy is the one “success” in a blisteringly long list of racism, bad ethical behavior, foreign affairs and bullying that has marked the Trump years. This is an important moment exactly because it may contribute to undercutting even that boast.

Within the blink of an economic moment, American farmers and manufacturer will find themselves trying to sell goods for dollars that will prove unaffordable in China — and likely other countries who follow China’s example to adjust their own currencies to stay in business. This, in turn, will hasten a global slowdown in trade, and will impel Trump to put yet more political pressure on the Federal Reserve to cut the cost of borrowing, and risking inflation within the United States.

This is not the column to explain the fine details of all this, but even within currency valuation, there are levels and rules in how far one country can go without affecting others. China seems prepared to throw that rulebook out to win the day with a very stubborn Donald Trump.

Trump may be talking a good game about the relative strength of the U.S. economy, but as China was talking about the currency change, American, European and Asian stock markets were dropping precipitously in value, money for investment was moving quickly into safer government bonds, and even Trump has had conversations with his economic advisers about adjusting the value of the U.S. dollar to weaken its value versus other countries. In other words, currency manipulation.

All this is going on as we suffer from the mass shootings in two cities — more if you count more than a single 24 hours, the possibilities of impeaching the president, a continuing immigration disaster on the southern border, nuclear weapons challenges from opposite ends of the globe, and Climate Change that only this White House denies is happening. If ever there was a moment for focused leadership, this is developing to be just such a time.

No one would argue that the disfunction in the White House or in Washington more generally would pass anything near to a high-functioning, laser-focused, thinking machine.

Indeed, the apparent decision by China to go toe-to-toe with Trump rather than seeking a way out that de-escalates the tensions points up that these things are about to get much worse before they get better. This tension alone makes markets uncertain, interferes with borrowing decisions, stops investment.

Here’s why it matters: On this path, it will not be long before jobs and hiring slow more, with wide effects on financing, housing, cars and manufacture. The setbacks that American farmers have seen will turn long-term, clothing and food will cost more, and divides in the country will deepen.

We should remember that China owns a lot of U.S. debt, which is increasing by an estimated trillion dollars this year to $22 trillion.

Maybe it is time for something other than red hats with mottos.


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Journalist, musician, community volunteer

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