Mubasher: "A matter of time" may separate us from a currency war led by the US president against China's "Renminbi" also, it is clear that Donald Trump sees Beijing as a major economic threat.
Last month, Trump announced a series of tariffs on imports and other measures to restrict the flow of Chinese goods and capital to the United States.
An analysis by Project Syndicate asks whether the United States will wage a "currency war" against China's renminbi.
In recent weeks, the US administration has unveiled a series of trade and investment measures aimed at "besieging China," with the fact that the Trump administration sees Beijing as a major "economic enemy" of the United States.
Washington is beating hard
To date, the United States has imposed large import tariffs of 25% for steel and 10% for aluminum, which Trump announced in person early last month.
Since then, the US administration has exempted key US allies while using tariffs as a bargaining chip for concessions from others.
China is not a major supplier of steel or aluminum to the United States, but China's excessive capacity has been a downward pressure on global steel and aluminum prices, hurting US producers.
So the US administration aims to force China to cut its output sharply.
Most importantly, the US administration has unveiled plans to impose import duties on Chinese goods worth up to $ 60 billion.
It also tightens restrictions on corporate acquisitions and investments by foreign companies, as well as its intention to confront China's forced transfer of technology to the World Trade Organization (WTO).
Moreover, Trump's management is moving in order to prevent Chinese companies from investing in sensitive US sectors such as semiconductors and LTE technologies.
Trump has already blocked a $ 117 billion deal from Broadcom, a Singapore-based company with close ties to China, to acquire US technology giant Qualcomm.
Similarly, the commissioner appointed by Trump in the Federal Communications Commission, "Ajit Bay", agreed that Huawei was a threat to national security.
Under a proposed new law, such carriers would not be able to provide equipment to companies that build Internet infrastructure in the United States.
China supports the yuan
To date, the US administration has not taken any direct action against the renminbi or yuan, but if it looks at Chinese exports and investments as a threat, it is likely to be only a matter of time before targeting the Chinese currency as well.
Since the 2008 global financial crisis, the Chinese government has tried to strengthen the "renminbi" position at the international level, loosening laws to increase business transactions through the renminbi and thereby bypassing conventional currencies such as the US dollar.
It has also established a network of clearing banks for the Chinese currency, which runs through financial centers around the world, as well as the processing of active markets with renminbi deposits and currency denominated bonds in Hong Kong and elsewhere.
The Chinese government has also reached currency exchange agreements with dozens of foreign central banks, in the hope that the renminbi will become a new global reserve asset.
At the same time, China made a major move in 2015 when the International Monetary Fund (IMF) agreed to include the renminbi in a basket of currencies that determine the value of its reserve assets, namely SDRs.
Previously, this privileged position was given only to the US dollar, the pound sterling, the Japanese yen and the euro. Therefore, the inclusion of the renminbi in the SDR basket gives it a strong boost on the international situation, which encouraged China to move forward in strengthening the currency.
More recently, China has launched a new exchange of renminbi-denominated crude futures, a move some observers see as a direct challenge to the dollar.
As part of its ambitious global influence, China aims to develop the currency's status to become a major global power.
The United States has long benefited from the dominant dollar position in financial markets and the reserves of central banks, a move China now wants to get similar fruits.
But if the Chinese currency is rising at the expense of the dollar, this situation will be very bad.
By Trump, US policy on maintaining the dollar's priority was largely negative. Even when it was clear that China was strengthening the renminbi position as an alternative to the dollar, the administration of former President Barack Obama did little to defend the dollar.
Indeed, the United States has actively supported the entry of the renminbi into the IMF's Special Drawing Rights (SDR) basket despite widespread doubts about the currency's qualifications as it wanted to encourage China to become more interested in the existing monetary system.
But then came Donald Trump, and despite the rising position of the Chinese yuan internationally, but the currency still has a long way to become a major currency.
Trump is supposed to know that and he will try to exploit the weaknesses of the renminbi.
For example, if China chooses to resist Trump's requests for trade concessions, the United States may prevent the use of the renminbi by US companies dealing with Chinese partners.
It could frustrate the US president or create new barriers to investments in renminbi-denominated assets or may offer swap agreements on favorable terms for any central bank to drop its agreement with China, meaning that the list of possible punitive measures is long.
Of course, the currency war will go hand in hand with a serious and potentially disastrous trade war.
At a minimum, financial markets could be destabilized and international lending could experience turbulence.
Unfortunately, these possibilities are unlikely to deter someone who believes that trade wars are good and easy to win, we can only hope the rule of reason and logic.
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