A yearlong U.S.-China trade war is escalating as the Chinese yuan dropped to its lowest point in more than a decade, knocking the U.S. dollar sharply lower and sending gold prices to a six-year high.
Argentine industrial production fell 6.9 percent in June versus the same month last year, government data showed on Tuesday, marking the 14 straight month of declines, and experts are already warning that the trade war between the world's two largest economies is likely to take a toll on Argentina's inflation rate and salaries.
Columnists Alfredo Zaiat and Federico Kucher expressed concern Tuesday in opeds for Pagina 12 over the effects of the devaluation of the yuan and the raise of the dollar on the Argentinian economy, which has always been the most vulnerable to external shocks over the past two decades.
The Central Bank keeps almost a third of its reserves in yuan, corresponding to about US$20 billion, while workers' salaries will decrease even further as the dollar's value keeps growing along with Argentina's inflation rate.
Argentina consumer prices also rose 2.7 percent in June, with inflation running at 55.8 percent according to the official estimate released in July. Latin America’s third economy is mired in recession while inflation rages at more than 50 percent.
Under President Macri, Argentina has taken a multibillion-dollar loan from the IMF in exchange for privatizations and deregulation. Argentina now has an annual inflation rate of over 55 percent in contrast to their neighbor Bolivia, under leftist President Evo Morales who saw an inflation rate of just 2.3 percent for the whole of 2018.
A recent study showed sharp rises in poverty levels, especially among senior citizens, 70 percent of whom are “unable to cover basic needs.”
The U.S. Treasury claimed Monday China was intentionally letting its currency weaken 1.4 percent, sending it past the key 7-per-dollar level for the first time in more than a decade. Beijing also halted U.S. agricultural purchases.
In its statement, the Treasury Department said the People’s Bank of China (PBOC) made clear that Chinese authorities had ample control over the yuan exchange rate despite their rejection of any claims of manipulation.
Last week, Trump stunned financial markets by vowing to impose 10 percent tariffs on the remaining US$300 billion of Chinese imports from Sept. 1.
The PBOC denied the accusations of manipulation, with Governor Yi Gang, who has been a key player in U.S.-China trade negotiations, saying that the yuan was now at an appropriate level given China’s economic fundamentals.
He said that China would not engage in a competitive devaluation and would maintain the stability and continuity of foreign exchange management policies.
The PBOC had linked the yuan’s weakness to the fallout from the trade war, but said it would not change its currency policy and that two-way fluctuations in the yuan’s value were normal.
With the escalating trade war giving Beijing fewer reasons to maintain yuan stability, some analysts said they expect the currency to continue to weaken further to as low as 7.3 to the dollar.