By Chris Michael
1. On August 23rd President Donald Trump tweeted that American companies are ordered to leave China or come back to the US to set up factories. On August 24th America announced that it would raise tariffs on about 550 billion USD worth of Chinese exports to the US by an additional 5%. Whatโs your comment?
A: Both forcing US companies to leave China and increasing tariffs on Chinese products are part of the US’s maximum pressuring tactics. These acts have seriously violated the consensus of the heads of state of China and the United States, damaged the principle of mutual respect, equality and mutual benefit, and seriously undermined the multilateral trading system and the international trade order. It is not constructive in any way and no one, not even the US itself, stands to gain.
The US stock market and commodity prices have responded to the above-mentioned news with major falls. American people from various sectors have expressed opposition to these remarks and the international community has voiced concern about such maximum pressuring.
China firmly opposes and rejects such sheer bullying and maximum pressuring tactics in trade. Increasing tariffs and decoupling Chinese and American economy are by no means the right prescription to ease the trade friction between China and the US. Even less likely will it offer the US a way out of its own problems. The US should heed the views from various sectors, balance its gains and losses, and come to prudent rather than hot-headed decisions. If the US were to further escalate frictions, China will continue to take resolute measures to safeguard its legitimate rights and interests.
2.On August 5th, the US treasury announced it has labeled China as โcurrency manipulatorโ in a statement. What is your comment on this ?
A: According to the three criteria for the definition of currency manipulator set by US Treasury itself, the US knows very well that China is not manipulating RMB. It also knows very well why it would force the label on China. The Chinese Ministry of Foreign Affairs and People’s Bank of China have both responded with China’s stance immediately. On August 9th the International Monetary Fund (IMF) published an annual report on Chinese economy, reiterating that Chinaโs exchange rate is โbroadly in line with fundamentalsโ, that is, RMB is neither over-valued nor under-valued. IMF also supports Chinaโs efforts for further exchange rate flexibility. Reviewing the fluctuations of exchange rate from the beginning of this year to August 2nd, RMB has weakened 0.9% against the US Dollar while Australia Dollar and the Euro weakened 2.7% and 3.1% against the US Dollar respectively. Nevertheless China is the only one labeled as currency manipulator. This political decision by the US is yet another tool to exert maximum pressure on China. One may be getting used to the US withdrawing from treaties and breaking rules in the international arena. But it is beyond oneโs expectations that the US would even disregard its own rules. Their credibility is at stake. Former US Treasury Secretary and Harvard University Professor Lawrence Summers also believes the designation of China as currency manipulator is without sound basis. This will not only damage the credibility of the US government but also bring risks of recession to the US economy.
3.What consequences do you think would be brought by this move?
A: RMB is traded in a floating exchange rate, which is determined by demand and supply in the market. By labeling China as currency manipulator, the US has extended trade frictions between US and China to the currency sector, which would only escalate tensions and bring new uncertainties to negotiations.
The US move has undermined the multilateral consensus on exchange rate issue and will bring serious negative impact on the stable operations of the international monetary system. It not only damages the international financial order and triggers financial market volatility, but also greatly hinders the recovery of global trade and economy. No
wonder some analysts believe that US is the root for the weakening of the world economy.
4.What is the current Chinese economy performance, is it affected by the trade war?
A: In the face of complex and ever-changing international economic situations, China’s economic fundamentals have remained stable with good momentum for growth in the first half of 2019. Its economic structure continued to optimize and upgrade, and has made positive progress in high-quality development. The GDP growth rate of 6.3% is still within reasonable range. In particular, domestic consumption has shown a strong momentum, contributing more than 60% to the economic growth and playing a key supporting role. Indeed the trade frictions have adversely affected China’s economy, especially foreign trade, but Chinaโs economy has demonstrated sufficient resilience and withstood the violent impact of trade frictions. The Chinese economy will maintain a stable and positive growth in the long term. And we are sure that both the Chinese and the world economy would be better if not disturbed by the US.
5.It has been more than one year since the trade war started. Who do you think will be the winner?
A: We always believe, and truth have proven time and again, that there is no winner in the trade war. Indeed, the development of Chinese economy has been affected to some extent. The Chinese people are ready to fight a protracted war against outside disturbances. But Iโd like to emphasize that it is definitely deluding for the US leader to claim that โAmerica is sure to win.โ On the contrary, American people is first and foremost the victim of the trade war.
According to the figures by the US “Tariffs Hurt the Heartlandโ Movement, by April 2019, US companies and consumers have paid more than $22 billion in tariffs due to the trade war. The uncertainties brought about by the trade war have dampened commercial investment and demand, reduced business confidence and capital expenditure, and dragged down Americaโs economic growth. The growth rate of American
economy has slowed from 3% to 2%. In August the American manufacturing PMI dropped to 49.9, the first time in ten years to be below 50. Coupled with an inverted yield curve and drastic fluctuations of the stock market, these are all early warning signs of an economic recession.
6.What impact will the trade war have on Cyprus?
A: The escalation of China-US trade friction is definitely not a blessing to other countries. With the momentum for world economic growth already insufficient, the uncertainties brought about by trade frictions have further increased the downward pressure on the world economy. The WTO has slashed the growth forecast of global trade in 2019 from 3.7% to 2.6%. The OECD estimates that global GDP may lose nearly $600 billion between 2021 and 2022. The World Bank and the International Monetary Fund have repeatedly lowered global economic growth expectations. In the second quarter, the Eurozone economy grew by only 0.2%. In particular, the โEuropeโs locomotiveโ German economy has contracted and the Eurozone economic sentiment indicator has fallen to its lowest level in three years, with investor confidence seriously frustrated. A German media outlet pointed out that currently the risk of an economic recession is comparable to the global financial crisis ten years ago, threatening employment and well-being of hundreds of thousands of people. Such recession will have a catastrophic impact on social solidarity and the growth prospects.
The global economy is deeply integrated nowadays and no country could stay away from the global impact. Cyprus has a highly outward-looking economy and the the international economic climate is crucial to the economic development of the island. The island has just recovered from the financial crisis and the its economy is about to boom. We hope the Cyprus could work with China to safeguard free trade and multilateralism, oppose power politics and economic bullying, and create an international environment conducive to an open, inclusive and sustainable growth.
