The escalating trade tension between Washington and Beijing threatens to become a currency war. That has potentially significant implications for Australian exporters. There are three questions to ask: what is it all about; what does it mean; and what are the implications for Australian dairy producers?
What it’s about: The Trump administration has taken a strong stand on growing US domestic manufacturing and reducing imports. Add to that the significant diplomatic challenges between the US and China. The result is the introduction of prohibitive tariffs by Washington on Chinese imports to the US. Reverse tariffs have had little impact because Chinese exports to the US far exceed US exports to China. The Beijing administration’s only available lever to address this issue is to intervene to artificially deflate the value of the renminbi compared to the US dollar. Unlike most international currencies (including the Australian and US dollars), the renminbi, or Chinese yuan, is one of the few remaining currencies actively regulated by a central government. Earlier this year Beijing allowed a nine per cent slide in the value of the yuan against the US dollar which more or less compensated for the impact of Washington’s newly imposed trade barriers.