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The US-China trade dispute is high in the headlines, with tit-for-tat blows in tariffs matched by increasingly truculent language. It’s disrupting many industries and adding to volatility on the financial markets.

Reporters fill their articles with militant language when writing about China’s relationship with the United States.

Having declared that the nations are locked in a “trade war” they are now warning of the threat of a “currency war.” They claim that China has “weaponised” the Renminbi and infer that other countries may be drawn into the conflict, causing global economic damage.

The attention-grabbing rhetoric has helped push the issue up the media agenda, particularly in the United States, where the dispute has become headline news not only in newspapers and online but also on social media and on TV news channels.

Violent language enlivens the analysis of complex issues such as tariffs and trade – topics which tend to be shunned by readers as obtuse or irrelevant. After all, why would people choose to click on a piece about capital flows, when they could instead turn to a juicy tidbit of celebrity gossip, or the fallout from some fresh Trump-inspired Twitter storm

Unfavourable mood

The excited tone of the press coverage appears to have affected public opinion. A Pew Research Centre poll conducted in June, after the acrimonious breakdown of trade negotiations between US and Chinese officials, found that 60% of Americans hold an “unfavourable” view of China, compared with just 26% who hold a positive opinion.

The trade dispute has also contributed to volatility on the financial markets, particularly over the summer. Whenever the US slaps tariffs on Chinese imports, China imposes penalties on US goods in return. Yet because China enjoys a significant trade surplus with the US, it is running out of American goods upon which it can impose retaliation.

Currency U-Turn

This has led the People’s Bank of China to devalue the currency, the Renminbi, allowing it to drop to less than seven against the dollar – a dramatic U-turn in its approach. Until recently, the Chinese authorities quickly stepped in when they saw the currency heading down towards that level, using huge sums from foreign exchange reserves to prop it up.

The deputy governor of the People’s Bank, Liu Guoqiang, is now trying a less interventionalist approach, telling the Financial Times:

The international community is currently in dire need of a stable economic and financial environment. Rather than resorting to protectionist measures, countries should be working together to promote economic growth and rebuild the confidence of global markets

Blaming America

Yet this side steps debate about what the Americans claim are the fundamental reasons that the trade war started in the first place.

Their resentment stems from what they see as the forced transfer of their technology to Chinese companies, copyright infringement and an imbalance in market access. Such complex matters take up the majority of time in the trade negotiations and the Americans complain the Chinese refuse to concede ground for ideological reasons.

The Chinese may require a face-saving compromise. Their exports to the US have fallen for eight straight months, according to Chinese customs data. And although the trade war has not caused a financial crisis, it has been a drag on the Chinese economy. After two decades of double digit growth, it slowed to its lowest rate in thirty years in the spring, although economists say there were many domestic factors behind this.

The language of war

So does this situation look like a war? That depends from which perspective it is viewed.

David Kelly, chief global market strategist at JP Morgan Asset Management asks:

We’re making the assumption that, at some stage, the other side will blink. But what if they don’t?

Mr Kelly also said to CNBC:

It’s an increasingly messy war. And of course, that’s how wars always end up. The generals will tell you that the troops are going to be home by Christmas but they never are. This problem could extend into next year and the year after that. From a political perspective, neither side will want to be seen as giving in.

Duncan plans to host a discussion about the Chinese economy at RSA House in London from 10am-12pm on Wednesday 11th September 2019.

Participants will include Professor Tatsuo Yoshikawa, Department of Economics, Keio University, Japan and Xiang Ko Gao, Managing Director of the UK Shanghai Business Association. RSA Fellows are welcome to join the event free of charge and may contact Duncan through the RSA website.

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