While it could be tempting to implement a strategy to make Chinese imports cheaper by making the US dollar stronger so that the higher costs because of the United States sanctions are offset, the global presence of the US dollar shows a different picture according to the International Monetary Fund (IMF).

“U.S. importers and consumers are bearing the burden of the tariffs,” IMF Chief Economist Gita Gopinath wrote in a blog post titled “Taming the Currency Hype”. The blog was also co-authored by Gustavo Adler and Luis Cubeddu.

“The stronger U.S. currency has had a minimal impact thus far on the dollar prices Chinese exporters receive because of dollar invoicing,” she wrote.

That conclusion of the IMF is in contrast to what the US president Donald Trump would like one to believe – that China is paying the financial cost of the higher import tariffs. Trump has also accused China of deliberately lowering the value of its currency the yuan to offset the effect of the US tariffs.

Earlier this month Trump tweeted: “Our consumer is paying nothing.”

The US tariffs has resulted in an average tariff of 10 percentage points on Chinese products since they were first imposed just over a year ago, said the IMF, and it predicts that it would go up by another 5 per cent if the treat of the latest tariffs made by Trump are indeed implemented form September 1. And at the same time, there has been a 10 per cent drop in the value of the yuan against the US dollar “largely as a result of these trade actions and associated uncertainties,” and the IMF report said that it has allowed China to cushion the impact of the US tariffs on import of Chinese products into the country.

A number of other means which could be used to counter the trade imbalances which would be better suited for global growth were also suggested in the IMF blog post. The post also noted that IMF’s global growth outlook was being dimmed because of the trade tensions. Such a global growth slowdown is taking place even as there is a slowdown in the overall Chinese economy and the country is entrenched in a prolonged trade war with the US. The trump administration had also recently formally designated China to be a currency manipulator following the dropping of the yuan earlier this month below the historical 7 per dollar mark.

“Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they mainly divert trade to other countries,” the IMF said. “Instead, they are likely to harm both domestic and global growth by sapping business confidence and investment and disrupting global supply chains, while raising costs for producers and consumers.”

“In part, this reflects the fact that trade is largely invoiced in dollars, which means that for most countries export volumes tend to respond little to exchange rates in the short run,” the IMF said Wednesday. “This applies to key U.S. trading partners, where the bulk of exports to and from the U.S. are invoiced in dollars.”

(Adapted from Bloomberg.com)

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