Trade tension- A Conundrum for the US
- Justin Jungwoo Lee
- Jun 23, 2019
- 1 min read
Weakening Chinese currency is a source of President Trump’s fury because devaluation of yuan erodes the impact of his tariffs on Chinese imports into America.
However, the recent downturn of Chinese yuan has been incurred, in part, by his tariff and increased trade tension between these two giants. Trade tension hit Chinese economy and devalued yuan. Lower yuan and stronger dollar will exacerbate American trade deficit.
Also, the weakened manufacturing and consumption in China will drag down the European economy, in turn, whose main export market is China. ECB will resume bond-purchase programming and cut rates to boost up its flagging economy. This remedy would depreciate Euro, which also has negative effects on American exports into Eurozone.
As such, easier monetary policy being considered by the Fed is the outcome of Trump’s administration, and such an abrupt policy return would shrink the policy space of American monetary authority.
In conclusion, the bullet fired at the enemy is going around to itself, raising an intractable conundrum for the US.
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