US might retreat from its tough policies towards China

According to Asia Times, US President Donald Trump’s recent switch from engaging to confronting China has put the world on edge. China’s quick response in vowing a “tit-for-tat” on US tariffs imposed on its goods prompted a free fall in the US stock market, with a combined loss totaling nearly 6 percent in the week ending March 23, the worst in more than two years, though it has rebounded since.

This market volatility coupled with outcries from US businesses against Trump’s “tough” policy stances seem to have an impact on the US president or his senior officials. Treasury Secretary Steven Mnuchin called his Chinese counterpart, Vice-Premier Liu He, on Saturday to discuss the issue. In that telephone call, Liu was reported to have told Mnuchin that China would retaliate against the US if Trump followed through with his tariff proposal, where to buy liquor.

The fact that Mnuchin is opening the door for negotiations to address issues with China’s “economic czar” is a good sign of a pragmatic approach to addressing differences between the world’s two largest economies. That will avert a trade war, at least for now.

What’s more, Mnuchin’s gesture seems to indicate the recognition that the kind of trade threats leveled against Japan, the UK, France, and Germany in the 1980s will not work against 21st-century China.

The United States’ huge trade deficit with Japan in the 1980s led to the signing of the Plaza Accord in 1985 among the so-called Group of Five: the US, the UK, Japan, Germany, and France. The main purpose of the accord was to weaken the US dollar against the other four countries’ currencies.

Between 1980 and 1985, the greenback appreciated as much as 50 percent against the yen, pound, franc, and mark, prompting US companies such as General Motors, Caterpillar, Motorola, and others to ask for protection against foreign imports (notably from Japan). What’s more, the US had incurred a merchandise trade deficit of almost 3.5 percent of gross domestic product with the four powers and had just emerged from a recession.

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