Immediately after Donald Trump became president-elect, the Chinese yuan fell through key support at 6.80 yuan per dollar, the lowest level since 2010.
The market reaction is hardly surprising, as Trump and his advisers have for a long time accused China of being an unfair trader and currency manipulator. They also vowed they would slap tariffs on Chinese goods if China doesn’t play fair in trade.
Trump adviser Peter Navarro says China has an unfair advantage because it follows lower health and safety standards and uses slave labor to keep labor costs competitive.
“If we learned anything from the World Trade Organization and NAFTA, it is that you have to put in stringent rules for worker health and safety protection,” he said, also mentioning China’s export subsidies and currency manipulation.
According to Navarro, if China doesn’t stop these practices, the United States will impose countervailing tariffs on Chinese products. Tariffs would result in fewer exports to the United States and therefore less demand for the Chinese currency.
“When Donald Trump talks about tariffs, they aren’t the endgame. The goal is to use tariffs as a negotiating tool to stop cheating. But if the cheating does not stop, we will impose defensive tariffs,” he said.
What Can Trump Do?
Victor Sperandeo, president and CEO of Alpha Financial Technologies LLC, thinks the United States could cap trade at a certain level, which “will harm China more than the United States. If we buy $500 billion, they have to buy $500 billion,” he said in an email. The United States absorbs 20 percent of China’s exports, worth $483 billion in 2015.
Other commentators think a Trump administration won’t be able to implement very harsh protectionist policies at all, because the traditionally pro-trade Republican Congress would have to consent as well.
“Big tariff increases on Chinese imports are quite unlikely. The focus will instead be on the theft of American intellectual property—something most people in either party would probably agree is a serious problem,” said Mark DeWeaver, author of “Animal Spirits With Chinese Characteristics.”
