Question

2) Are there any merits to the U.S claim about China and its RMB Yuan? Why or why not?

3) How does this affect the global economy?

Answer 1

Ans ) The relations between US and China have become worst.The main reason for it is trade war that has been because of the deliberate currency devaluation by China.China's curreny is RMB Yuan and the devaluation of Yuan is done to gain from trade as the devaluation of currency , make exports profitable .As because of the doller becoming strong against the Yuan , exporters will for example 1 $ = 3 Yuan if the Yuan is devalued then 1$ = 5 Yuan then exporta will earn 5 Yuan by exporting goods worth 1$ .The claims  are justified as US government has claimed that China is currency manupulator and deliberately undervalued Yuan to gain from exports to US.It has been observed that China has been facing a slowdown and to counter it the devaluation of currency is done through increasing the suppply of Yuan in forex market  , hence the supply is increased and that make more Yuan to purchase the doller.The result of currency war is the trade war that is creating a very big threat to free trade and globalisation.Ans .3)  The trade war has began a new era of protectionism , where trade barriers like import duty and high tarrifs are imposed on imports to discourage them.This leads to a great problem for the WTO as these practises will lead yo damage the global economy and ultimetly decline in global trade.Every country will devaluate its currency to gain the advantage of the international trade , that will lead to a bigger problems.Although devaluation will boost exports for a shorter period of time but hampers domestic production.