(Bloomberg) -- The U.S.- China trade war could trigger competitive currency devaluation across the globe and disrupt financial order, China’s former central bank governor Zhou Xiaochuan said on Friday.
The global consensus of no competitive currency depreciation could be challenged if the dispute drags on, Zhou said at a major financial forum in Shanghai, adding that he hopes the upcoming Group of 20 meeting will help stabilize financial markets.
The offshore yuan extended its drop after the comments by Zhou, who stepped down from the top job of China’s central bank last year. The offshore yuan has fallen 0.9% in 2019 as one of the worst performers in Asia amid escalating trade tensions with the U.S. The currency slipped 0.07% to 6.9341 a dollar as of 11:16 a.m. in Hong Kong.
The world’s two biggest economies have imposed tariffs and threatened each other’s companies after the trade negotiations broke down last month. President Donald Trump has repeatedly threatened to raise tariffs if Chinese President Xi Jinping doesn’t meet with him at the G-20 leaders’ meeting from June 28-29 in Osaka, Japan. Trump has said he has no deadline for China to return to trade talks that collapsed amid U.S. accusations that Beijing reneged on commitments in a tentative accord.
Countries will take expansionary fiscal and monetary policies in an effort to offset the negative impact of the trade war, Zhou said. Those policies should be a temporary adjustment and won’t be "precise" enough to directly compensate exporters and importers.
"We should seek a permanent cure," he said. "We should try to make trade policy return to the normal track through trade talks and WTO reforms."
He also said China should tap other markets because its exports to the U.S. are set to fall as a result of the tensions. That could take about two to three years, and in the meantime China may suffer from export losses that could put pressure on the yuan, he said, without elaborating.
To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Charlie Zhu, Philip Glamann
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