Merkel: "We are competing against currency regions with 30% undervaluation" — China counters: "China's competitiveness is not artificially created through exchange rates"

The EU summit reached an agreement to study and develop its own toolkit to counter distorted competition. German Chancellor Merkel's remarks after the summit regarding "currency undervaluation" drew criticism from China's Global Times.

After the EU summit on Friday, June 19, Merkel stated in Brussels: "In some cases, we are competing against regions whose currencies are undervalued by as much as 30%." "I remind you that such distortions between trading blocs have occurred before, decades ago."

Merkel referred to past monetary negotiations with the United States and conditions prior to the introduction of the euro in Europe. "At that time, the European Monetary System had agreed upon exchange rate bands. That vision now comes to mind again," she said. "We are not here to blame each other, but rather to address imbalances."

Handelsblatt reported that Merkel cited the so-called 'Plaza Accord' as an example — a 1985 agreement reached at the Plaza Hotel in New York, under which the German mark and the Japanese yen were allowed to appreciate against the US dollar to alleviate trade imbalances.

According to the website of Germany’s Financial Times (Börsen-Zeitung), Merkel avoided explicitly naming China when making these remarks.

Merkel emphasized that it is correct for the European Commission to now be developing its own toolkit to resist distorted competition. She stressed that the EU must be able to protect itself.

Avoiding Trade Conflict with China

At last week’s EU summit, according to official statements, national leaders discussed "global macroeconomic imbalances." China was clearly implied. Last year, the EU’s trade deficit with China reached a staggering 360 billion euros. In response, the European Commission called for stronger measures against Beijing.

Overall, this call received broad support among member states, though concerns remain. Diplomatic officials referenced former U.S. President Trump’s trade war with China, warning that a trade conflict with China must be avoided.

As Merkel stated after the summit, participants tasked the European Commission with "sharpening trade defense instruments and adding further tools." The EU must "have effective instruments to defend its own interests."

China’s competitiveness “is not artificially created by exchange rates”

On June 22, China’s Global Times published an editorial criticizing Merkel’s statement about a "30% undervaluation" of currencies. The editorial stated: "The rise in Chinese enterprises’ competitiveness… is not artificially manufactured through so-called exchange rate manipulation." "China will not accept measures disguised as exchange rate issues to suppress it, nor will it return to the old era of powerful nations dictating the fate of a few."

Jürgen Matthes from the Cologne-based Institute for Economic Research (IW) told Deutsche Welle that a clear undervaluation of Beijing’s currency combined with substantial subsidies means Chinese products would normally cost around 50% more under fair competitive conditions.

However, Handelsblatt reported on June 22, citing a study from the Kiel Institute for the World Economy, that only about one-third of Germany’s declining market share in third countries can be attributed to China’s expansion. Some challenges stem from "internal factors" instead.

According to Der Spiegel, so far, the European Commission has taken individual, small-scale defensive measures—after long reviews—against China’s trade practices, such as imposing balancing tariffs on Chinese electric vehicles, offering greater protection to domestic steel industries, and ending the duty-free treatment for large volumes of small parcels entering the EU.

Source: DW, Reuters, AFP

Original article: toutiao.com/article/1868738048593996/

Disclaimer: The views expressed in this article are those of the author alone.