Trump dismisses trade war concerns as China halts agricultural purchases
The White House says it is still open to trade talks, as the yuan weakens further after a sharp Monday drop, and China warns of chaos
Washington/Beijing/Shanghai — On Tuesday, US President Donald Trump dismissed concerns over a protracted trade war with China, as Beijing warned that Washington’s decision to label it a currency manipulator would lead to chaos in financial markets.
Trump, who announced last week that he would slap a 10% tariff on a further $300bn in Chinese imports starting September 1, said investment was pouring into the US economy. He also pledged to stand with American farmers in the face of Chinese retaliation.
China has halted US agricultural purchases and raised the spectre of additional tariffs on US farm products.
“Massive amounts of money from China and other parts of the world is pouring into the US for reasons of safety, investment, and interest rates!” Trump tweeted. “We are in a very strong position.”
Ratcheting up the pressure on China, the US treasury department said on Monday it had determined for the first time since 1994 that Beijing was manipulating its currency. The move followed China’s decision to let the yuan fall below the key 7/$ level for the first time in more than a decade, rattling financial markets and dimming hopes for an end to a trade war that has dragged into a second year.
Wall Street notched its worst day of 2019 on Monday. Major US stock indices were trading higher on Tuesday.
China’s central bank said on Tuesday that Washington’s currency move would “severely damage international financial order and cause chaos in financial markets”, while preventing a global economic recovery.
China “has not used and will not use the exchange rate as a tool to deal with trade disputes”, the People’s Bank of China (PBOC) said in the country’s first official response to the latest US salvo. “China advised the US to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path.”
The Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for further talks in September, Larry Kudlow, director of the White House national economic council, told CNBC on Tuesday. He said movement towards an agreement could change the outlook for US tariffs, adding, “It takes two to tango.”
He said that the US economy was still in good shape and that he saw no signs of a global recession on the horizon despite growing concerns the US-China stand-off is slowing manufacturing activity around the world.
“The US economy is very strong. The rest of the world is not. We’re the engine that makes it go. Frankly, I see no signs,” he said, when asked about the prospect of a global recession. “The economic burden is falling vastly more on [China] than us.”
Kudlow said Washington was forced to take the currency move given a 10% drop in China’s currency since April 2018, and said other members of the G7 industrialised countries supported the action. “At some point in time, if they are violating our laws, World Trade Organisation laws and, frankly, G20 laws of currency stability ... we have to take the action,” he said. “They brought it on themselves.”
The US-China dispute has already spread beyond tit-for-tat import tariffs to other areas, such as technology, and analysts caution retaliation could widen in scope and severity, weighing further on business confidence and global economic growth.
The US currency action now has driven an even bigger wedge between the two countries.
Global Times, a Chinese tabloid published by the ruling Communist Party’s People’s Daily, said the US had taken the action purely out of a political motive to “vent its anger”. China “no longer expects goodwill from the US”, Hu Xijin, the newspaper’s editor-in-chief, tweeted on Tuesday.
The US sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus; a significant trade surplus with the US; and persistent one-way intervention in foreign exchange markets.
Less than three weeks ago, the International Monetary Fund (IMF) said the yuan’s value was in line with China’s economic fundamentals.
Chinese state media had warned that Beijing could use its dominant position as a rare-earths exporter to the US as leverage in the trade dispute. The materials are used in everything from iPhones to military equipment.
Shares in some of China’s rare earths-related firms surged on Tuesday amid speculation the sector could be the next front in the trade war. Beijing could also step up pressure on US companies operating in China, analysts say.
In June, China issued a travel advisory warning Chinese tourists about the risks of travelling to the US, citing concerns about gun violence, robberies and thefts. Air China said on Tuesday it was suspending its flights on the Beijing-Honolulu route starting on August 27, following a review of its network.
In a further sign of deteriorating ties, China’s commerce ministry announced overnight that its companies had stopped buying US agricultural products in retaliation against Washington’s latest tariff threat.
Chinese monetary authorities let the yuan fall past the closely watched 7/$ level on Monday so that markets could factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.
The yuan has tumbled as much as 2.7% against the dollar over the past three days to 11-year lows in the wake of Trump’s announcement of the new tariffs. But it appeared to steady on Tuesday amid signs that China’s central bank may be looking to stem the slide, which has sparked fears of a global currency war.
The offshore yuan fell to a record low of 7.1397/$ on Tuesday before clawing back losses after the central bank said it was selling yuan-denominated bills in Hong Kong, a move seen as curtailing short-selling of the currency.
Onshore yuan also opened weaker before steadying, but remained below the 7/$ level. While the central bank set a slightly firmer-than-expected morning benchmark rate, it was still the weakest since May 2008.
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