Chinese yuan wilts again, cushioning the blow of Trump tariffs

Sean Reid
July 23, 2018

President Trump raised the stakes in the US trade war yet again yesterday by threatening to slap tariffs on more than $500 billion worth of imports from China.

"I'm not doing this for politics, I'm doing this to do the right thing for our country", Trump said. "I'm ready to go to 500".

In this sense, rather than closing American doors to China at a time when China is inviting the world's goods and capital into its substantial and expanding domestic market, Trump could opt for a strategy whereby new deals are cut allowing for the dropping of U.S. tariffs on Chinese imports while garnering specific agreements from Beijing to allow more United States goods than ever before to be sold on the Chinese market.

"I don't want (China) to be scared".

The president's remarks indicate his willingness to escalate America's trade war with China, dashing hopes the two sides would arrive at a compromise before more tariffs were imposed. The agreement was reached following a meeting between President Muhammadu Buhari and Chinese President Xi Jinping.

State governors discussed ways Thursday to court foreign investment in the wake of President Donald Trump's trade disputes with countries including China, Canada and Mexico.

The world's two largest economies are locked in a trade confrontation with no end in sight after the United States early this month imposed 25 per cent tariffs on approximately US$34 billion of Chinese mechanical and technological products. That encourages investors to move money out of China in search of higher USA returns. More than 70 percent of Republican and Republican-leaning US adults believe increased tariffs between the United States and its trading partners will be good for the country, according to a Pew Research Center survey released late Thursday.

For great powers like China and the U.S., competition - even conflict - is natural. It is, however, vital for us to manage such competition in an effective and constructive way. -China trade war and the other conflicts President Trump has ignited.

He again said he was willing to ramp up his attacks on China, potentially imposing punitive tariffs on all of the $505.6 billion in goods imported from that nation.

YUAN DECLINES: The People's Bank of China set the Chinese currency's central parity rate to 0.9 per cent weaker against the dollar yesterday.

USA stocks inched lower Friday as bond yields jumped, a shift that helped banks but hurt companies that pay big dividends.

Trump's comments against Fed rate hikes also helped steepen the Treasury yield curve.

On Friday morning, Trump for a second day also criticized the Federal Reserve, breaking with a long-standing tradition at the White House of avoiding any influence, real or perceived, on the independence of the US central bank. The administration has also accused China of engaging in unfair trade practices by forcing American investors to turn over key technologies to Chinese firms.

And while the currency has been weakening in recent weeks, Mr Nordvig said Thursday's sharp adjustment appeared to be a deliberate move. The results will probably be announced by Monday, they said.

"The escalating trade war, if it goes badly, could be a risk for the USA economy", Mr Bullard said, adding he understands the policy's objective.

He added: "For great powers like China and the U.S., competition - even conflict - is natural".

"Does the U.S. government genuinely believe China would possibly yield to such unreasonable policy?" he asked.

The Wall Street Journal noted that Mr Trump's comments had an immediate impact on global markets, sending the stocks lower.

If threatened trade barriers become reality, global output could drop by about 0.5 per cent below its projected level by 2020, International Monetary Fund chief economist Maurice Obstfeld said.

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