With Beijing threatening to retaliate if the U.S. declares China a currency manipulator and imposes trade sanctions, it’s easy to come to the conclusion that the currency debate is hitting up and causing serious tensions between both countries.
According to Nouriel Roubini, a professor at New York University, the U.S. and China are on a “collision course” over the yuan and investors are underestimating the “consequences” for global financial markets.
In a note to clients, Roubini wrote that there is a 50% chance that the U.S. government will label China a currency manipulator.
Relations between China and U.S. have been deteriorating over claims by Washington that China holds its currency low so that Chinese goods can enjoy an artificial competitive edge in global markets.
Three years ago, Beijing let the yuan climb more than 20% against the greenback.
Political pressure is growing in Washington to declare China a currency manipulator. Last week more than 100 members of the US Congress asked the Obama administration to designate China a currency manipulator and called for countervailing duties to be imposed on Chinese imports.