Renminbi adjusts to the difference, weight of trade
The American media has recently tried its best to demonize China, bashing the “pricing” of the renminbi as if it actually “fixes” its own exchange rate.
While some countries have adopted US dollar currency pegging mechanisms that are supposed to deliver confidence, albeit a false sense of one, those currency pegs have all failed in the end.
Due to the sheer dominance of the US dollar in the exchange rate system worldwide, any “marginal” money printing in America can effectively flood all but the largest countries with a seemingly unlimited supply of dollars, wreaking havoc. The old drumbeat used to be Japan bashing as high-quality Japanese goods flooded American shores and politicians sought to limit their import.
It didn’t work. Toyota remains a massive success while General Motors went bankrupt.
Protecting inferior technology works like that.
Today we have China bashing, and while the Japanese yen was always a free-floating currency relative to renminbi — the yuan is supposedly “fixed” in China, and now supposedly “weaponized.” This is patently false.
China has a “free-floating” currency as well. It has a “basket” approach which automatically adjusts to the difference and weight of trade conducted with its offshore partner countries, the US being a large component of that basket.
When America uses China for its manufacturing center, and when the same country creates a trade barrier amounting to around 20 per cent of all goods imported to America, you would expect the long-standing “basket” to drop 20 percent relative to the US dollar because the tariff represents a reduction in “basket weight” relative to China’s other partners.
Putting a gun to one’s own head and blaming others is truly incredulous.
The Chinese economy is incredibly resilient and robust, as many sectors of the economy are growing at 30 percent plus annually, with no stopping in sight.
What does the macro picture look like? We couldn’t be more bullish on China’s future prospects, and these past few weeks have only emboldened our view.
The competition from China should be viewed positively for all of the good that it brings to the world.
America is “weaponizing” itself through the use of “temper tantrum” tariffs with its number one trading partner.
The so-called currency manipulation is a non-event.
It only represents America becoming less relevant as a trade partner and a smaller part of China’s trade-weighted currency basket.
Becoming less relevant to China is the largest risk for America today.
Shawn A. Mesaros is the Founding Principal of PAMRIA, a private wealth management firm located in Seattle, Washington, US.