By Charles Pennaforte, LabGRIMA’s Coordinator.
US President Donald Trump has said that since the Nixon administration, US presidential administrations have been negligent in failing to confront Beijing over China’s growing power as an exporter. If he’d had his way, America would have watched China’s economic rise passively, to the detriment of the country’s interests. Even though its growth rate has slowed over the past few years, China became the main commercial and electoral target during the 2016 campaign. Following the Republican victory, Washington has put its American First policy into practice.
In fact, the trade war against Beijing not only causes major instability in the international economy but also brings back protectionist trade practices that negatively impact the level of global growth, as seen during the 2018 downturn. Especially when there’s retaliation on both sides.
In a globalised economy with connected markets, it is impossible to believe that there could be any winning side to the current Washington-Beijing confrontation. However, aggressive electoral rhetoric directed against China seems to be more important to Donald Trump, who seeks re-election.
Since Deng Xiaoping promoted the great economic transformations in the 1980s, the Chinese have been aware of the important role their devalued currency plays against the dollar in promoting trade. However, under the Washington attacks, China will seek to respond in a timely manner without raising the level of response. In fact, for both of them, a “total trade war” would not generate a winner, only defeat.
The great problem with Donald Trump’s administration is the relative unpredictability of his actions, which are not always based on a coherent line of action. However, the little coherence that may exist is linked to domestic politics and elections in 2020.
For Europe, the prospect of slowing economic growth is an important aspect to consider, as the rise of US-China rivalry will certainly have a great effect on the Eurozone. The possible US pressures for a European alignment with its immediate interests in the face of the dispute with China should be viewed with reservation. The bloc’s alignment with sanctions against Iran, for example, has brought great economic losses to Europeans.
For Moscow, which has been under pressure from economic sanctions since the reunification with Crimea, the negative impact of the Washington-Beijing trade war would be on the possible effects on Europe, whose trade relationship with China is more significant when compared, for example, with the US. A Europe with low economic growth would have repercussions for the Russian economy linked to commodity exports. On the other hand, Moscow has been building good strategic relations with Beijing, a fact that may contribute to reducing the impact of a larger systemic crisis.
The US president has been writing in his tweets that US trade has been hampered, not only by China’s “unfair” practices but also by the dollar’s comparative disadvantage against other world currencies. Although the posts do not provide real data to support Trump’s assumptions.
In this scenario, there seems to be no one to benefit from this clash, featuring a battle with no winners. As a reflection of US-China rivalry, a possible currency war would have serious impacts on emerging economies and further economic instability, with a widespread effect on international trade.