US labels China a currency manipulator as stocks fall
The US-China trade war took a dangerous turn for the worse yesterday as Beijing allowed its currency to weaken and said it was halting new American farm purchases, sending US stocks in a tailspin and heightening risks of a global economic downturn.
The Chinese actions were seen as retaliation after Trump last week abruptly announced plans to impose new 10 per cent tariffs next month on an additional US$300 billion (NZ$457b) of Chinese goods, despite having declared a truce in late June.
Then later in the afternoon, the US Treasury Department formally labelled China a ‘‘currency manipulator,’’ reversing years of avoiding the designation so as not to inflame Beijing.
The renewed escalation dimmed hopes for a near-term trade deal and now threatens to bring another potent weapon into the confrontation: national currencies.
Beijing yesterday allowed its yuan to fall in value to its lowest level against the dollar in more than a decade. A weaker yuan would make Chinese exports cheaper for US buyers, potentially blunting the effects of higher US tariffs.
Trump immediately accused China of being a ‘‘currency manipulator’’ and his Treasury Department officially made that determination in the evening. Analysts said, however, there was no evidence that China had ‘‘weaponised’’ its currency, as some alleged. Instead, experts said the Chinese currency had weakened due to market forces partly as a result of Trump’s new tariff threats and China’s economic slowdown.
Nonetheless, Trump blasted China during the day and suggested that the Federal Reserve, which last week cut interest rates partly because of trade worries, should intervene to counter the Chinese move — raising the specter of a currency war.
The increased tensions and fears of more tit-for-tat measures spooked financial markets.
The Dow Jones industrial average fell as much as 961 points on Monday afternoon, local time, before ending the day down 767 points. That was still the worst drubbing this year, the sixth largest point drop in Dow history, and the fourth straight session of losses that now total nearly 1,500 points.