China has upped the ante in its trade dispute with America. By allowing the yuan to fall on foreign-exchange markets, Beijing has shown how far it will go in response to existing US tariffs on Chinese goods, as well as additional ones now threatened by President Trump.
But China’s moves also signal weakness: Beijing can no longer play the tit-for-tat tariff game. And because the devaluation has raised the risk of capital flight from China, the currency move also hints at desperation.
With or without the devaluation, Beijing is in a tough spot. On one side, the Communist Party can ill afford a trade war, since it has an implicit contract with the Chinese people to deliver prosperity in exchange for autocratic rule. But Beijing cannot countenance Washington’s demands that China import more from the United States, cease cyber theft and let Americans do business in China without Chinese partners.
These aren’t new demands, but the Trump White House wants them guaranteed in Chinese law. This last point, China’s leadership claims, is an affront to the country’s sovereignty — already a sensitive issue, given the turmoil in Hong Kong.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest book is Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live. This piece was adapted from City Journal.
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