David Yeliang Xia: U.S.-EU Free Trade Will Be a Blow to China

Ms. Gao: Do you think this new round of Renminbi depreciation was a move of the Chinese communist regime? What impact has it had upon the ongoing U.S.-China trade war? And Trump and the European Commission president announced they would work towards zero tariffs. How will the Chinese regime deal with that?

 

Mr. Xia: Over the years, the value of Renminbi has been related to China’s real economy, its external economic environment, risks in its financial system, and money supply. So, as I criticized, this approach of the Chinese government — over-issuing currency — will certainly depreciate Renminbi significantly. This depreciation is a sure trend in both the middle and long term. Right now it’s so obvious in the short term that some doubt it is a move by the Chinese government. However, I don’t see much need for the regime to do so. What it might do at most is leave the currency uninterrupted. As we know, if Renminbi is depreciated too much, the authorities may use its foreign exchange reserve, say, in large amounts, buying Renminbi and selling U.S. dollars, to keep its currency stable and appreciated to a certain degree. But right now, there’s no such need. Yes, generally, depreciation will contribute to exports amid the U.S. trade war with China. However, we face a situation in which that method might not necessarily bring about huge interests as expected. It’s known that America’s stance means it will slap high tariffs on $500 billion dollars’ worth of Chinese imports. Therefore, China, by devaluing Renminbi, alone cannot successfully promote its exports in a usual sense. More importantly, President Trump and European Commission President Juncker issued a statement following their summit that both sides would remove trade barriers, tariffs, and any subsidies, thus creating a free trade zone with “zero tariffs,” and “zero subsidies.” Mind you, the total population of the two regions is 830 million, nearly 12 percent of the world’s population. And their GDP combined consists of 50 percent of the world’s. With such a titan free economy for free trade zone, if added up with Japan and some other trading powers, the majority of global economies, I believe, will enter a stage of extremely low, even zero-tariff. That will be a disastrous suppression and blow to China. Therefore, the Chinese regime will never change the dynamic, with such a minor scheme — depreciation.

 
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