The probability of China cutting its trade surplus with the US responding to tariff threats proposed by President Donald Trump is absolutely nil. Beijing cannot respond to any direct demand put across by Washington. Nevertheless, there is a looming debt in crisis in China attributed to the efforts made by Washington in imposing a 25% increase in trade tariffs.
At first, the 25% increase in tariffs on machinery and electronics export appeared like a furtiveness tax on offshoring. In line with Trump’s 2016 tax promise “any business that leaves our country”, the tax increase centers goods categories such as nuclear components and semiconductors, in which U.S. manufacturers based in Chine are performing well economically.
A closer look at the imposition of new tariffs on low-value exports involving Asian value chains, it appears that the new tariffs aim at possibly reducing the trade of cheap products bought by the U.S rather than targeting offshoring.
Nevertheless, the U.S administration seems set on reducing its present account deficit which is much lower than the 6 percent reached in the 2006-2007 financial year. This comes just as the interest rates are rising thanks to the U.S Federal Reserve legislation. Already, the 25 percent trade tariff increase has caused an economic crisis in China with the currency(yuan) exchanging at 6.725 to the U.S dollar, the lowest rate in a year and 5 percent less than the exchange rate at the end of May 2018.
With China’s stable and centrally controlled currency, such an increase on trade tariffs is not easily felt. However, a stable currency is the government’s promise to its citizens and can only be achieved by the central bank firmly managing the exchange rate to prevent an unusual increase.
Investors in China have started exporting money as seen in May 2018 where there was a decline in the foreign-exchange reserves due to the uncertainty of the yuan stability despite buying official assurances guaranteeing the stability of yuan for almost a year. One sign of an impending economic collapse in China is the currency in which as much as China tries to display a well-performing economy courtesy of an increase in GDP; the crisis is evident with passing clouds on trade, employment rates, and products consumption.
The other evident economic collapse sign is the decline in The Shanghai Composite Index of stocks by 7 percent in a month, plummeting for the first time since September 2016 below the set redline of 3,000 shares. Additionally, corporate bonds are being largely defaulted in addition to junk bond yields confounding. The economic crisis has even been made public with the media reporting on the failure of the government to pay its employees or even meet pension responsibilities further increasing the anxiety surrounding the declining economic situation. Property prices have not been spared either as they are mainly dipping in major cities and frozen in others as the government attempts to resolve the economic crisis by stopping property transactions….
Music: CO.AG Music https://www.youtube.com/channel/UCcavSftXHgxLBWwLDm_bNvA
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