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USA and China upgrade

Following the consensus between China’s leader Xi Jinping and US President Trump at the G-20 summit in Osaka, Japan, in late June, US and Chinese representatives renegotiated in Shanghai. The stock market casinos reacted positively to euphorically. But then the US president tweeted that from September 1, he would impose 10 percent punitive tariffs on other Chinese imported goods worth 300 billion dollars. As always, the “biggest dealmaker in history” said the Chinese side had not shown enough complacency and had not kept to promises.

The Middle Kingdom reacted immediately and sent a strong signal: the People’s Bank of China left the reference rate of the Chinese currency yuan renminbi the magic ratio of 7 yuan to one dollar for the first time since the global financial and economic crisis in 2008. to reach. The Volksbank had it informed that it was no longer prepared to unduly support the exchange rate. In addition to this marginal devaluation, the government also instructed state-owned enterprises not to import agricultural goods, including soya, from the United States for the time being.

U.S. government speaks of “currency manipulation”

U.S. Treasury Secretary Steven Mnuchin immediately accused China of “unfair advantages in world trade” with a “conscious devaluation” of the yuan. And Trump wrote on Twitter of a “serious violation.” For the first time since the mid-1990s, a US administration officially accused China of “currency manipulation.”

The People’s Bank of China replied that the minimal devaluation of the yuan was a “response to unilateralism and trade protectionist measures, as well as the imposition of higher tariffs on Chinese goods.” Moreover, the People’s Bank has ‘the experience, self-confidence and ability to maintain the renminbi’s exchange rate at a reasonable and balanced level’.

Yuan exchange rate stronger than dollar and Swiss franc

China had tied the yuan exchange rate to the market years ago in a daily range of plus-minus 2.5 percent. China’s central bank governor, Yi Gang, has rightly pointed out that China is a responsible country that will not participate in a devaluation race. The International Monetary Fund in Washington (IMF) concluded in the latest report that the yuan “broadly corresponds to medium-term economic fundamentals”. And in the NZZ, which is usually very critical of China, Chief Economist Peter A. Fischer comments: “The Chinese central bank has made the yuan gain in real value more than the Fed has made the dollar and the Swiss National Bank (SNB) the Swiss franc.”

The slower growth of China’s gross domestic product in recent years has created downward pressure on the yuan. Because the People’s Bank intervenes less, the exchange rate is now moving closer to the market in China as well. Incidentally, almost all of them “manipulate” a little. The SNB is defending the Swiss franc against the euro with interventions, and President Trump wants the Fed to cut interest rates more to weaken the dollar.

“Strategic Thinking changed”

Xi Jinping, head of state, party and military, reacted to this, especially for domestic political reasons. He must show himself to American provocations strongly and at the same time make Washington clear that he is ready for a dispute if necessary. With his actions, Xi must convince not only Chinese, but also the party and propaganda apparatus. Shi Yinhong, Professor of international relations at the Peking people’s University, says: “Xi has just changed his strategic thinking. He is determined” to oppose the US resistance.

Xi has, entirely committed to the long-standing Tradition of the Communist Party of China, prepared the people. Three months ago, he traveled to Jiangxi province, which was the starting point of the legendary, hard-won long march of the Red Army in 1935, which eventually led to the victory of the communists. Xi exhorted the Chinese people to begin a new long march.

Peace and prosperity in danger

The competition between the world’s largest and most powerful nations USA and China is increasingly affecting the wider world. The Trade dispute is no longer limited to trade. Security policy, global economy, and even globalization are affected.

A decoupling of the so far almost symbiotic connected Chinese and American economy would have disastrous consequences. It would be the end of globalization, which has brought peace, prosperity and environmental damage to the world in recent decades as never before in history.

At the beginning of the Chinese economic reform forty years ago, conditions were still relatively simple. The rich USA had to deal with the poor developing country China. For decades, the trade exchange, it was clear that China bought agricultural products, such as soy, and high technology such as aircraft, Railways, etc. of the USA, while the USA imported textiles, shoes, or toys from China.

In the last ten years, however, the picture has changed fundamentally. China has caught up technologically. And how. New mechanisms are therefore needed in new global trade. With the complex new products, trading partners need much more trust and cooperation than before.

With “America First” threatens a Cold War 2.0

US President, Donald Trump, of course, does not see these changes. Although Xi refers to him as his “friend”, he obviously does not trust him in the way. Because: A Deal is a Deal is a Deal. Point. Trump has overturned with the Europeans. He left the TransPacific Partnership. He slips China in a twittering and unobstructed direction. America First stop.

In a globalized world, there is a need for cooperation, trust and compromise. For the current US Administration, this is probably too much, too laborious. Will it come to the Cold war 2.0? The consequences would be: Less stability in the world, and less prosperity.