Moscow: While China could respond to the recent US tariffs with measures such as currency devaluation, boosting domestic consumption via stimulus, or selling off US Treasury securities, none of those is likely to effectively counter Washington’s new trade policy, Marshall Auerback, a research associate at the Levy Economics Institute of Bard College, told RIA Novosti.
According to Namibia Press Agency, US President Donald Trump signed a decree on April 2 imposing reciprocal tariffs on imports from other countries, with a base rate of 10%. However, on April 9, Trump announced that more than 75 countries had requested negotiations, so for 90 days, all countries except China would be subject to the base 10% import tariffs. After a series of steps in the trade war, US tariffs on Chinese goods reached a total of 145%, while China decided to increase tariffs on US goods to 125% starting April 12.
Marshall Auerback stated that China might adopt more domestic stimulus to encourage consumption, but the government cannot force citizens to spend money if they are concerned about the sustained trade attack on their country. He noted that domestic consumption in China was already low before the tariffs, and the post-pandemic economic recovery has been weak, with factory closures and high youth unemployment. Home prices, a significant part of many middle-class Chinese families’ wealth, have also declined.
When discussing the possibility of China devaluing its currency, Auerback pointed out the inflation risks that would accompany such a measure. He indicated that even if China devalued its currency, the impact would be minimal due to the magnitude of the US tariffs. Excessive devaluation could lead to significant inflation, which could be politically destabilizing for the Beijing government.
Auerback also addressed the idea of China selling its stock of US Treasuries, suggesting it would be equivalent to “cutting its nose to spite its face.” He explained that the US Federal Reserve could intervene by purchasing the Treasuries, essentially transferring dollars between accounts. He described the process as routine US debt management, where the Federal Reserve shifts dollars between savings and checking accounts on its books.
He concluded that for the US government, China’s dollars are merely stored in reserve accounts, which results in issuing fewer bonds and, consequently, paying less interest to Beijing.