President Trump has stated that he WILL tag China as a manipulator of RMB Yuan currerency, and Mr Trump WILL do it! If China is manipulating their currency illegally they might be facing sanctions from USA. This is basically sanctions that make Chinese products more expensive in USA; it is suggested 45% duty on imported Chinese products; 1000 USD become 1450 USD. As a result the trade will be reduced dramatically. This is something China wouldn’t like or can accept. Remember that USA pays 367.000.000.000 USD (2015) more a year to China than China pay to USA. This is an increase of about 50.000.000.000 USD from two years before. President Trump is absolutely correct in the fact that USA do bad trade with China, but China is a producing country and USA a service country. One
When China (because IF is out of the question) respond to USA we will see something hard. China is not that happy with President Trump and his acts after he entered the oval office; remember the telephone with the President of Taiwan. The two most possible reactions is an adjusted access for USA companies to Chinese factories and closing parts of the Chinese market for USA. This is a strategy that China followed some years ago against Norway when the Nobel peace prize went to a person China did not like. For years Norway struggled with China to regain the market. This sanctions did not stop before Norway accepted a bad deal with China in the end of 2016.
It is very likely that China will complain to WTO, but as we know this complain will last about 1.5 years to be processed. During these 1.5 years we will see China suffer as the US trade decreases. This gives China no choice they need to react against the USAs sanctions. Most likely we will see a change in the tax on USA products in China and sanctions on US companies. It will be something like you increases the tax for me, and I increase the tax for you. At the same time as you cannot establish trade relations as before; sand in the system. If will become a WAR on trade. Both sides will loose and this is likely to be the beginning of a negative economic spiral. Just imagine: China stops buying US Soya beans. This might sound innocent, but this is 25% of all soya trade in the World! Perhaps China stops buying US airplanes and selects another alternative. USA will over night kneel in a deep economic depression. What if China put a ban on selling important minerals that is used in the American iPhone. As a result Apple will be out of business over night. Did you know that the US pension fund have inverted a small fortune in Apple stocks. These stocks will be worth almost nothing over night. It is also possible that everything culminate in a total mess. What if China starts regulating the US traffic in the southern China Sea. Another tool in the Chinese tool box is extra tax on US products, but perhaps the worse tool is an extreme sale of US stocks and obligation papers. This might create a close to economic collapse in USA. China owns for 2.000.000.000.000 USD in USA. If China sells we will find an increase of interests in USA that might be compared with the tulips in Holland hundred years ago. China will of coures also loose on this, but honour and face is more important than money. It is important to understand that USA and China need to be friends to maintain an economic stability. Both countries depend on this stability, and if something happens USA will suffer most.
It is also important to remember that China have at several occasions adjusted RMB Yuan to become stronger (NOT WEAKER) to remain this US-China balance. For example China sold 570.000.000.000 USD to avoid a weak RMB Yuan. The last years we find the relative cost of Chinese currency increasing, and not decreasing as Mr. Trump argues. China has actively worked to maintain a relative stability to maintain a stable export. Something the US secretary of finances concluded with in October 2016. I don’t think that Mr. Trump knows something we don’t know, and I am sure that he will moderate his actions when they come. China will respond, but most likely it will be of a more symbolic nature.