Analyst: Weaker Yuan Not A Weapon During Cold War

Analyst: Weaker Yuan Not A Weapon During Cold War

The conflict between China and the United States resurfaced amidst the threat of the novel coronavirus. The western economic giant blames the Asian superpower of covering-up the coronavirus outbreak during its early stage. The two nations slapped each other with drastic economic policies as they argue trade practices.

Since last year, US President Donald Trump accuses China of unfair trade practices and unlawful technology transfer. The US President claimed that China technology steals information form US companies. The two parties slap each other with billions worth of tariffs since last year.

The western superpower also accused China of using its currency as a weapon during the trade war. An analyst from Bloomberg claimed that there is little evidence for the assumption. China is not using the weakening Yuan as a weapon for the cold war against the US.

US-China trade war slashed trillions from American Firms investment growth

The Federal Reserve Bank of New York reported on Thursday that the US-China trade war slashed US$1.7 trillion from the US firm’s market value. The report said that the imposed high tariffs might reduce American firms’ investment growth by around two percentage points.

Authors led by economist Mary Amiti, vice-president at the Federal Reserve Bank of New York, noted that the increased cost has already cut US investment expansion by 0.3 percentage points through the end of 2019 and will decrease by another 1.6 percentage points this year.

They also reported that the American firms covered most of the duties imposed on US imports while traders exporting to China gain less profit because of the Chinese tariffs. The report is contrary to the narrative of President Trump that China is paying the duties.

Coronavirus crisis weakened Chinese Yuan

The effect of the prolonged trade war between the two nations, and the coronavirus, affected both economies. Just like the rest of the world, the US and the Chinese economy is in decline. The Chinese Yuan’s stability this year turned weaker because of the economic effects of the trade war and the Coronavirus pandemic.

Yuan is at a record low at 7.1965 over the US dollar, a drop of around 0.7 percent, on Wednesday. Despite a recovery on Thursday morning, its overall rate is downbeat.

Some analysts claimed that China might use the weakening currency as a weapon during the cold war with the US. However, Bloomberg Analyst Shuli Ren wrote that there’s little evidence of foul play from the People’s Bank of China.

The analyst said that since mid-2017, the central bank had based its fixing on the previous day’s close, dollar movement overnight against a currency basket. He explained that it calls the “countercyclical factor,” a catch-all metric that grants wiggle room to deviate from market fundamentals. Ren added that the Yuan could move in a 2% trading range around the PBOC’s daily target.

Fear in the US business sector grows as the two nations intensify their trade conflict. Many companies are scared that they might not survive the hit caused by the coronavirus lockdowns and the growing conflict between the two countries.

Relevant news