In the zero-sum game of a currency war, politicians nudge their central banks to cut borrowing costs so as to push down the exchange rate. U.S. President Donald Trump wants more reductions from the Federal Reserve and a weaker dollar. China is showing him why such a strategy will be self-defeating.
"Almost two years into the trade war, China has finally become smart. The country is flexing its muscles to show it can handle U.S. tariff pressure – and that it has many tools left to retaliate. Monday’s weaker yuan is a warning shot. If Trump imposes a 10% tariff on a further $300 billion of Chinese imports in December, Beijing just needs to open the lid on its capital controls a little wider. The yuan has a natural tendency to weaken anyhow."
-------------------------------- Several people have eaten my cooking and survived.
Posts: 25850 | Location: Still living at 9000 feet in the High Rockies of Colorado | Registered: 20 April 2005
We don't need a manipulation story. US tariffs on Chinese goods will tend to push up the value of the $$ against the Yuan without any central bank actually "manipulating" anything. This is what sensible people who study the international economy have been saying ever since Trump started the trade war.
The idea that you "cure" a nation's trade deficit with tariffs runs up against a basic macroeconomic accounting identity. The trade deficit reflects a nation that is spending more than it saves. Unless tariffs change that balance, all they do is appreciate the currency relative to its trading partners, which undoes much of the effect of the tariffs. A big mechanism for tariffs to cut the trade deficit is through reducing our incomes (and hence our spending)... recession.
Posts: 12759 | Location: Williamsburg, VA | Registered: 19 July 2005
Chinese companies have halted purchases of US agricultural products, marking the latest escalation of the trade war between the United States and China.
The halt in purchases comes in response to the Trump administration's announcement of new tariffs on Chinese imports last week, China's Commerce Ministry said Tuesday morning. The new 10% tariffs on $300 billion worth of Chinese imports are set to take effect on September 1.
China's Commerce Ministry called the new tariffs a "serious violation of the consensus reached by the two countries' leaders in Osaka." At the June G20 meeting in Osaka, American and Chinese officials had agreed to a cease-fire in the trade war.
State media had earlier quoted officials as saying Chinese companies had ordered US agricultural products after the Osaka summit, but some deals fell through due to "competitive pricing."
China's State Council Customs Tariff Commission also said Tuesday morning it "will no longer exempt US agricultural products purchased after August 3 from import duties."
