Trade War Between U.S. and

Trade War Between U.S. And China Trade War between the U.S. And China Over the last several years, trade between U.S. And China (in terms of currency) has been exacerbated and increasingly brought to the forefront. At the heart of these arguments, is the belief that China should remove the peg against the U.S. dollar and let their currency float freely against the major ones.

The problem arises around this issue itself, as this has been helping to contribute to a host of different challenges that have been leading to increased tensions. To fully understand the overall scope of these issues requires examining the relationship between: the two nations and how this could influence this affiliation down the road. Major reason of the trade war between U.S. And China: globalization of production The large account surplus caused some nations (i.e.

The United States and the European Union) to accuse China of engaging a new form of mercantilism at their expense. This is when they are unfairly flooding trading partners with cheap imports. as, China created: an enormous current account surplus, hampering other nations' exports. If left unchecked, this creates vast inequalities in the global economy, as key areas become deprived of wealth. As a result, the artificial peg on the Chinese currency, the yuan, has become a source of a major contention.

The reason why, is because yuan is currently undervalued due to the peg. Background of the trade war At the heart of the issue, it is the overall rate that the Chinese should let the currency appreciate. As many Western nations are: calling for the peg to be completely removed, in order to assuage the current situation, in the hope of eradicating all trade imbalances. However, the Chinese firmly believe that they should take gradual steps towards revaluation.

This is to avoid drastic moves that may affect economic growth and unemployment. Therefore, the relations between these nations and China have become increasingly strained. This is the heart of a potential trade war; as the overall rate of currency revaluation could spark: heated emotions and animosity. The problem arises around this issue itself, as this has been helping to contribute to a host of different challenges that have been leading to increased tensions. From the viewpoint of the U.S., China should remove the peg against the yuan.

The reason why, is because they believe that it is giving them an unfair advantage over American companies (by keeping their costs artificially low). While China believes that they need to gradually reduce the peg, so that any kind of adverse affect from these changes will be limited. This is troubling, because these two different viewpoints increase the odds that some kind of: currency or trade war will take place in the future.

Body The Motivations behind China's Currency Policy The original reasons why China had their currency pegged against the dollar is: that it provided stability and it allowed the country to sell low cost imports in markets where there was a large amount of consumers (i.e. The United States). Over the course of time, this helped China to be able to adapt to the changes that are taking place in the world economy. as, they quickly became one of the largest importers for: a variety of manufactured goods.

However, as time went by it became clear that the country was keeping their currency artificially low. This was a part of an effort to help the nation to: build up their currency reserves (through large trade surpluses) and begin to establish some form of long-term economic development. Once this began to occur, it meant that a shift took place in this relationship, as China began to: experience consistently rising trade surpluses and deficits at the expense of their trading partners.

This led to calls that China was engaging in a new form of mercantilism by: artificially keeping their currency low. These different elements are important, because they are showing how China is using this as way to: help increase their reserves and wealth. as, they are: reluctant to remove the peg and believe that it could cause severe damage to economic growth. Because of these.