U. S. labels China ‘ currency manipulator’
WASHINGTON — The U. S.- China trade conflict took a dangerous turn for the worse Monday as Beijing allowed its currency to weaken and said it was halting new American farm purchases, sending U. S. stocks in a tailspin and heightening risks of a global economic downturn.
The Chinese actions were seen as retaliation after President Donald Trump on Thursday abruptly announced plans to impose new 10% tariffs next month on an additional $ 300 billion of Chinese goods, despite having declared a truce in late June.
Then, later Monday afternoon, the U. S. Treasury Department formally labeled China a “currency manipulator,” reversing years of avoiding the designation so as not to antagonize Beijing.
“This is quite an inflammatory step, there’s no doubt about it,” said Fred Bergsten, founding director of the Peterson Institute for International Economics.
Even though U. S. and Chinese trade officials met last week and had scheduled more talks for next month, the renewed escalation dimmed hopes for a near- term deal and threatened to bring another potent weapon into the confrontation: national currencies.
“The move from retaliatory tariffs to currency depreciation now threatens to become part of the U. S.China trade war and will impact trading partners,” said Joseph Brusuelas, chief economist at RSM, a tax and consulting firm.
Beijing on Monday let its yuan fall in value to its lowest level against the dollar in more than a decade. The exchange rate on Monday breached a kind of psychological threshold in hitting 7 yuan to the dollar. A weaker yuan would make Chinese exports cheaper for U. S. buyers, potentially blunting the effects of higher U. S. tariffs.
Mr. Trump immediately accused China of being a “currency manipulator” and his Treasury secretary, Steven Mnuchin, officially made that determination in the evening. In doing so, Mr. Mnuchin cited the Omnibus Trade and Competitiveness Act of 1988, and said the Treasury would turn to the International Monetary Fund to get involved.
Analysts said, however, there was no hard evidence that China had intervened to gain a competitive trade advantage or sought to “weaponize” its currency, as some alleged. Instead, experts said the Chinese currency probably had weakened because of market forces partly as a result of Mr. Trump’s new tariff threats and China’s economic slowdown.
According to Mr. Bergsten, who with his colleagues at Peterson has extensively studied China’s currency practices, Beijing was guilty of manipulating its currency from 2003 to 2013, but no longer. Past administrations did not label China a manipulator to avoid publicly embarrassing Beijing, which officials viewed as being counterproductive.
Nonetheless, Mr. Trump blasted China on Monday 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.
Mr. Trump stopped short, however, of ordering Mr. Mnuchin to take steps to intervene in currency markets to weaken the dollar. And China’s central bank said Monday that it is confident in its capability to keep the yuan’s exchange rate basically stable, according to the Xinhua news agency.
Still, the increased tensions and fears of more titfortat measures hammered financial markets Monday and ricocheted to Europe and in Asia on Tuesday.
After weeks of hovering at record levels, the Dow Jones industrial average fell as much as 961 points Monday afternoon 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.