The trade conflict between China and the United States is escalating, but Beijing has just removed one possible leverage.
Premier Li Keqiang addressed a gathering of international business leaders and policymakers, stating that China will not devalue its currency to enhance trade with other nations.
“China will never take the route of stimulating exports via currency devaluation,” Premier Li announced on Wednesday.
His remarks came just after the US and China revealed they would execute their most significant tariffs yet on each other’s exports, set to commence next week.
This development raises the total value of goods affected by the intensifying trade dispute to over $360 billion. President Donald Trump has warned that an additional $267 billion worth of Chinese imports may also face tariffs.
With China purchasing significantly fewer US goods compared to US imports from China, it is beginning to exhaust options when it comes to American products for retaliation, leading to speculation about other ways to respond.
According to Li, weakening the currency, known as the renminbi, isn’t one of those alternatives.
“Ongoing depreciation of the renminbi would ultimately cause more harm than benefit to our nation,” he stated during a speech at the World Economic Forum in Tianjin.
Since the escalation of the trade dispute, the yuan has seen a sharp decline against the dollar, losing approximately 9% of its value since April.
Accusations of manipulation
This decline has attracted the attention of President Trump, who has frequently accused China of deliberately devaluing the yuan to support its extensive export sector. Trump asserted in July that China was “manipulating” its currency downward.
On Wednesday, Li refuted that claim.
“The recent changes in the renminbi exchange rate have been interpreted by some as a deliberate action by China,” he remarked. “This is simply inaccurate.”
While the Chinese government plays a pivotal role in dictating the yuan’s value and trading mechanisms, economists generally concur that Beijing has historically kept the currency undervalued. However, many are skeptical that government intervention has contributed to its decline against the dollar and other significant currencies this year.
Analysts believe that the ongoing trade war with the United States and worries about a slowdown in the Chinese economy have contributed to the yuan’s depreciation, especially as the US Federal Reserve steadily increases interest rates. This creates a more appealing environment for investors to hold US dollar assets, leading to the sale of other currencies.
Unexpected declines in the yuan in 2015 and early 2016 triggered chaos in global markets, causing a massive outflow of capital from China. In response, Beijing expended hundreds of billions of dollars to stabilize the yuan.
Li expressed that China will “strive to create conditions that support the stabilizing of the yuan’s value.”
However, his comments did not fully convince everyone present.
“Manipulation has occurred and continues to happen, and I urge action to be taken,” stated Todd Rokita, a congressman from Indiana supporting Trump, during a UJ interview right after Li’s address at the Tianjin conference.
UJ (Tianjin, China) First published September 19, 2018: 3:26 AM ET
