In an interview with Bloomberg Television Friday, when questioned as to whether US President-elect Donald Trump
will formally declare China a currency manipulator, Judy Shelton, one of Trump's economic advisers, said "he is someone going to carry through on what he says."
After the election, Trump began to soften his tone on a string of issues he campaigned on, for example, he hailed the alliances with Japan and South Korea, with no mention of asking the two countries to pay more to support US stationed troops there. But at this moment Shelton claimed Trump would follow through with his pledge to declare China a currency manipulator. What does this mean? Trump is not obstinate with regard to ties with China. Making things difficult for China politically will do him no good. Almost all experts on US-China trade believe that Trump's declaration on the bilateral economy is unprofessional. The yuan's inclusion in the SDR basket has attested to the marketization of China's exchange rate. Trump's accusations against China for currency manipulation cannot hold water. If he does list China as a currency manipulator and slap steep tariffs on Chinese imports, China will take countermeasures.
Declaring China a "currency manipulator" will increase the pressure on appreciation of the yuan. It runs counter to the trend of shorting the yuan in the international financial market. However, China's reputation will be affected, and the trade atmosphere between China and the US will become more tense.
To impose a 45 percent tariff on imports from China is merely campaign rhetoric. The greatest authority a US president has is to impose tariffs of up to 15 percent for 150 days on all imported goods and the limit can only be broken on the condition that the country is declared to be in a state of emergency. Other than that, a US president can only demand a tariff increase on individual commodities.
Not long after Barack Obama took office, US trade and commerce authorities announced a 35 percent import tariff on Chinese tires. In response, China took retaliatory steps of imposing tariffs on US chicken and automotive products. Both China and the US suffered losses as a result. From then on, the Obama administration waged no trade war against China. If Trump imposes a 45 percent tariff on Chinese imports, China-US trade will be paralyzed.
China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US.
Trump as a shrewd businessman will not be so naïve. None of the previous presidents were bold enough to launch an all-out trade war against China. They all opted for a cautious line since it's most consistent with the overall interests of the US, and it's most acceptable to US society.
Trump cannot change the pattern of interests between China and the US. The gigantic China-US trade is based on mutual benefits and a win-win situation. Even as president, Trump can exert limited influence on it.
If Trump wrecks Sino-US trade, a number of US industries will be impaired. Finally the new president will be condemned for his recklessness, ignorance and incompetence and bear all the consequences. We are very suspicious the trade war scenario is a trap set up by some American media to trip up the new president.