China has been a currency manipulator for years. Everyone knows it. China knows it. The U.S. knows it. Every economist in the world knows it.
China has an enormous trade surplus with the world. Typically, when this happens, the value of that currency rises making its exports more expensive to other countries. This, in turn eventually reduces the amount of imports a country makes, thereby reducing the overall trade deficit.
China, which requires its citizens to hold their savings in state run banks, uses the large amounts of currency it generates sending exports around the world to ensure that the value of the Yaun never gets above a certain amount. In turn, this both keeps its exports cheap, and prevents any closing of the trade gap between its trading partners.
None of this is secret, or remotely new information
Trump Calls Out China Currency Actions
What is new, is that usually no one says it out loud, and no one ever actually makes it official by labeling China a currency manipulator.
So, what does it mean now that China has been officially labeled?
Nothing.
You see, since China has been doing this forever, and the other countries have known about it forever, everyone is already doing what they can do, more or less.
The U.S. is already involved in trade negotiations with China. It already has tariffs on tons of Chinese goods, even before Trump’s huge expansion of tariffs. Theoretically, the U.S. can now go to the IMF and get them to do… something. Of course, if China ignores the IMF, the remedy for the U.S. is to… issue tariffs.
The reality is that countries are countries and they can do what they want. Of course, in some cases, the negative effects of actions will force a country to change its actions. In other cases, such as China, the country and its economy is big enough to not really need to capitulate, at least not right away.
The reality is that even if Trump is right, and the U.S. can win a trade war with China, wars are not quick, and not all battles are victories. Along the way there will be damage, and sooner or later that damage will be too much for one of the other countries and there will be a settlement between them that most likely does little other than tweak the status quo.
