THINK TANKAug 02, 2018

Andrew X. Tang, Desupline: What Will the China-US Trade War Bring to the Global Market?

Recently, the China-US trade war is undoubtedly the hottest topic in the world, but what I see from the China-US trade war is the financial incident.

Looking back at the global financial tsunami that took place in 2008, and the US stock market has already reached a historic highest point. Facing the once-a-decade financial crisis, I am wondering: What is the fuse of the new round of global financial tsunami? As the China-US trade war has become more and more fierce, I seem to have found the answer: the new round of global financial tsunami fuses is likely to kick off with the China-US trade war.

Some people may think that I am alarmist, but I can responsibly tell my friends that the new round of the global financial crisis will be getting closer and closer. If the China-US trade war is as the Trump administration has said, it is prepared to impose tariffs on all US$500 billion of Chinese imports. I believe this will definitely lead to turmoil in the global financial market.

As a senior international financial expert, I am very aware of the importance of finance to a country. OPEC member state Venezuela, for instance. Crude oil price was as high as $115.71 on June 19, 2014; as of January 20, 2016, crude oil was priced at $27.10. Venezuela’s export is 90% rely on oil, and the Venezuelan economy has gone through a nightmare due to the sharp drop in crude oil prices. Coupled with the US government's economic sanctions, the Venezuelan financial market collapsed overnight. South American countries that once relied on the oil-rich side have now stepped into currency depreciation, following Zimbabwe. Venezuela's inflation rate will rise to 1000000% by the end of 2018, and Venezuela becomes the country with the worst economy in South America and among OPEC members.

It is not difficult to find that the major international economic events are inseparable from the United States. The economic collapse in Venezuela is a typical case. The purpose is to cause financial panic, which will lead to the collapse of the country’s financial market and the national economy without a single soldier, triggering political instability eventually.

From June 15 to July 6, 2018, the Chinese stock market fell from 3021.9 to 2691.02, a drop of 10.95%. The impact of the China-US trade war on China's financial market is obvious.

China is one of the most powerful countries in the global economy and the world's second-largest economy. Facing with western powers that have different social systems, especially the capitalist countries led by the United States, and I doubt would the United States allow China successfully sit tight on the throne of the world’s second-largest economy.

On June 15, 2018, Washington time, the Trump administration released a list of 25% of the US$50 billion tax on Chinese goods. Among them, US$34 billion worth of goods will come into effect on July 6, 2018, Washington time. Another $16 billion commodity is still under evaluation. The final list of US trade representatives includes 1,102 product lines, including robotics, aerospace, industrial machinery, and automobiles, while consumer products such as mobile phones and televisions are not on the list. At the same time, China has imposed a 25% tariff on US 659 items worth about US$50 billion, of which 545 items worth about US$34 billion will be subject to additional tariff from July 6, 2018. The additional duties will be levied on soybeans, whiskey, automobiles, etc., and officially came into effect at 00:00 on July 6, 2018, Beijing time. As a result, the China-US trade war officially started. On July 10, Washington time, the Trump administration once again announced that the US$200 billion of Chinese exports to the United States would be subject to an additional 10% tariff. After that, Chinese goods may face more tariffs up to US$300. Therefore, Chinese goods will face a total tax of US$550 billion. At the same time, the United States and the European Union reached a trade agreement with zero tariffs, zero trade barriers, and zero subsidies, which laid the foundation for the United States and the European Union. After that, the United States will also reach trade agreements with countries such as Canada, Mexico, and Japan. It can be seen that the United States is forming an economic alliance to isolate China.

The rise of China is an indisputable fact. However, the Western powers led by the United States do not want the rise of the Pearl of the Orient. The China-US trade war is only a fuse, a fundamental factor that has broken the global financial market. This inevitably reminds me of the invasion of China by the Eight-Power Allied Forces in 1900. Today, one hundred years later, the economic war, led by the United States and aim at the economy, is about to begin.

Looking back 30 years ago, the US had a huge trade deficit and a serious fiscal deficit. The US government hoped to improve its balance of payments by making its exports more competitive by devaluing the US dollar. On September 22, 1985, the US-led Western powers: Britain, Germany, and France signed a "Plaza Accord" with Japan at the Central Park Plaza Hotel in the United States. Its main content is the depreciation of the dollar against the yen to solve the serious trade deficit problem in the United States. Within three years after the signing of the agreement, a dollar has fallen rapidly to yen from 250 yen to 120 yen, that is, the dollar depreciated by 50% against the yen and the yen appreciated by 100% against the dollar. This has caused the Japanese stock market to be miserable. On December 29, 1989, the Nikkei index rose to a record high of 38957.44. As of April 28, 2003, the Nikkei index fell to 7603.75, and the Nikkei index fell by 80.48% in 13 years. Since then, the Japanese economy has been sluggish and the Japanese economy has not fully recovered yet.

Whether the "Plaza Accord" signed by the US against Japan similar to today's China-US trade war? China is now the world's second-largest economy and in the midst of a once-a-decade global financial crisis. In the past decade, the US economy has been rapidly recovering under the stimulus of Quantitative Easing Monetary Policy, and even the US securities market has achieved a historic high. Since the Fed decided to withdraw from the Quantitative Easing Monetary Policy, the US economy has lost the main driving force to stimulate the growth of the US economy, and the United States must find new economic growth points. As we all know, the reason why the United States can dominate the world today depends on its military, finance and technology. For the development direction of the US economy, the Quantitative Easing Monetary Policy is the core finance of the United States. When the Quantitative Easing Monetary Policy is completely withdrawn, the United States will inevitably create international financial events and achieve its goal through financial manipulation: economic aggression. Venezuela and Japan are typical victims: the United States defeated the Japanese economy through exchange rate manipulation, and let the Japanese economy could not recover in 30 years; the United States defeated the Venezuelan economy by lower crude oil prices, and even completely let Venezuelan economy collapsed.

For China, I believe that the United States utilizes trade war against China, and its core purpose is to attack China's financial market and even the global financial market. The China-US trade war is aimed at bringing down the Chinese economy. By disrupting global trade activities with the aim of destabilizing global financial markets, the US could reap the benefits of a global financial storm.
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