This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at https://www.nytimes.com/2019/08/05/business/economy/us-china-yuan-renminbi-trump.html
The article has changed 22 times. There is an RSS feed of changes available.
| Version 9 | Version 10 |
|---|---|
| China Uses Currency as Weapon in Trade War, Rattling Markets | China Uses Currency as Weapon in Trade War, Rattling Markets |
| (about 1 hour later) | |
| WASHINGTON — The trade war between the United States and China entered a more dangerous phase on Monday, as Beijing allowed its currency to weaken, Chinese enterprises stopped making new purchases of American farm goods and President Trump indicated he would look for ways to retaliate. | WASHINGTON — The trade war between the United States and China entered a more dangerous phase on Monday, as Beijing allowed its currency to weaken, Chinese enterprises stopped making new purchases of American farm goods and President Trump indicated he would look for ways to retaliate. |
| The escalation shook world markets on Monday, as nervous investors looked for safe places to park their money. Wall Street suffered its worst day of the year, with the S&P 500 closing down nearly 3 percent. Selling was especially heavy in the trade-sensitive technology, consumer discretionary and industrial sectors. Yields on United States Treasuries, which fall as prices rise, dropped as investors sought safety in government-backed bonds. Benchmark indexes in Asia and Europe also fell. | The escalation shook world markets on Monday, as nervous investors looked for safe places to park their money. Wall Street suffered its worst day of the year, with the S&P 500 closing down nearly 3 percent. Selling was especially heavy in the trade-sensitive technology, consumer discretionary and industrial sectors. Yields on United States Treasuries, which fall as prices rise, dropped as investors sought safety in government-backed bonds. Benchmark indexes in Asia and Europe also fell. |
| On Sunday, the People’s Bank of China, the country’s central bank, allowed its currency to weaken past the psychologically important point of 7 to the American dollar for the first time in more than a decade. In an unusually blunt statement, the bank blamed the currency fall on Mr. Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.” | On Sunday, the People’s Bank of China, the country’s central bank, allowed its currency to weaken past the psychologically important point of 7 to the American dollar for the first time in more than a decade. In an unusually blunt statement, the bank blamed the currency fall on Mr. Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.” |
| Mr. Trump’s decision to impose additional tariffs on Chinese goods also prompted Chinese enterprises to halt purchases of American agricultural goods, according to China’s state-run Xinhua News Agency, which called the president’s proposed tariffs a “serious violation” of an agreement reached in June with Chinese President Xi Jinping. | Mr. Trump’s decision to impose additional tariffs on Chinese goods also prompted Chinese enterprises to halt purchases of American agricultural goods, according to China’s state-run Xinhua News Agency, which called the president’s proposed tariffs a “serious violation” of an agreement reached in June with Chinese President Xi Jinping. |
| The toughened positions underscore the tough path ahead toward resolving the trade dispute, which has begun to inflict damage across the global economy. American and Chinese negotiators met in Shanghai last week, the first face-to-face discussions since trade talks collapsed in May, but made little progress in resolving their differences. The question now is whether Beijing will try to effectively neuter the impact of Mr. Trump’s tariffs by allowing its currency to significantly weaken in value versus the American dollar. A weaker currency can make goods cheaper to sell abroad, which would allow businesses and consumers to more easily digest the additional tax Mr. Trump has imposed on Chinese products. | The toughened positions underscore the tough path ahead toward resolving the trade dispute, which has begun to inflict damage across the global economy. American and Chinese negotiators met in Shanghai last week, the first face-to-face discussions since trade talks collapsed in May, but made little progress in resolving their differences. The question now is whether Beijing will try to effectively neuter the impact of Mr. Trump’s tariffs by allowing its currency to significantly weaken in value versus the American dollar. A weaker currency can make goods cheaper to sell abroad, which would allow businesses and consumers to more easily digest the additional tax Mr. Trump has imposed on Chinese products. |
| If China allows its currency to fall even more, countries in East and Southeast Asia that compete in similar industries could face market pressure to devalue their own currencies. Such devaluation spirals can lead to higher inflation, pinched household spending and disruptive shifts of money across borders. They can also lead to more tariffs or other restrictive trade measures. | If China allows its currency to fall even more, countries in East and Southeast Asia that compete in similar industries could face market pressure to devalue their own currencies. Such devaluation spirals can lead to higher inflation, pinched household spending and disruptive shifts of money across borders. They can also lead to more tariffs or other restrictive trade measures. |
| “It’s hugely significant as they are making a clear choice to do this,” said Michael Every, head of financial markets research in Asia for Rabobank, referring to China’s central bank. “This is going to escalate rapidly and badly.” | “It’s hugely significant as they are making a clear choice to do this,” said Michael Every, head of financial markets research in Asia for Rabobank, referring to China’s central bank. “This is going to escalate rapidly and badly.” |
| A significant devaluation could also hurt China itself. Many of its biggest and most indebted companies in sectors ranging from property to heavy industry have borrowed huge amounts overseas in American dollars. A weaker renminbi makes paying that debt back more expensive. It could also hurt companies that depend on commodities, such as oil, that are priced in dollars, and could spur wealthy Chinese to take their money out of the country. | |
| For those reasons, devaluations make investors nervous. Four years ago, when China devalued its currency more drastically, a global market rout followed. | For those reasons, devaluations make investors nervous. Four years ago, when China devalued its currency more drastically, a global market rout followed. |
| This time, the immediate threat is how Mr. Trump may respond. The president, who has long accused China of manipulating its currency, and did so again in a series of tweets on Monday and suggested he would retaliate. | This time, the immediate threat is how Mr. Trump may respond. The president, who has long accused China of manipulating its currency, and did so again in a series of tweets on Monday and suggested he would retaliate. |
| “China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the U.S. with unfair trade practices and currency manipulation,” the president wrote. “So one-sided, it should have been stopped many years ago!” | “China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the U.S. with unfair trade practices and currency manipulation,” the president wrote. “So one-sided, it should have been stopped many years ago!” |
| Mr. Trump has already imposed punishing tariffs on $250 billion worth of Chinese goods in an attempt to force China to open its markets to American companies, protect American intellectual property and end currency intervention. His administration has also imposed tougher restrictions on Chinese investment, banned some Chinese firms from doing business with American companies and begun restricting visas for Chinese graduate students in sensitive research fields like robotics and aviation. | Mr. Trump has already imposed punishing tariffs on $250 billion worth of Chinese goods in an attempt to force China to open its markets to American companies, protect American intellectual property and end currency intervention. His administration has also imposed tougher restrictions on Chinese investment, banned some Chinese firms from doing business with American companies and begun restricting visas for Chinese graduate students in sensitive research fields like robotics and aviation. |
| Those moves appeared to give Mr. Trump leverage earlier this year and the two sides were close to a deal. But Beijing rejected some of America’s demands in May and talks collapsed. | Those moves appeared to give Mr. Trump leverage earlier this year and the two sides were close to a deal. But Beijing rejected some of America’s demands in May and talks collapsed. |
| After meeting with Mr. Xi in June and agreeing to restart trade talks, Mr. Trump agreed to hold off on additional tariffs. But last week, Mr. Trump said he would impose 10 percent tariffs on another $300 billion worth of Chinese goods as punishment for Beijing’s failure to make large-scale purchases of American farm products, like soybeans. | |
| On Monday, Beijing indicated those purchases would not be forthcoming anytime soon. | On Monday, Beijing indicated those purchases would not be forthcoming anytime soon. |
| China’s official Xinhua News Agency cited the country’s economic planner, the National Development and Reform Commission, and the commerce ministry as saying that Chinese companies were suspending purchases of American agricultural products in response to the Trump administration’s plans to impose new tariffs on $300 billion in Chinese exports to the United States. | China’s official Xinhua News Agency cited the country’s economic planner, the National Development and Reform Commission, and the commerce ministry as saying that Chinese companies were suspending purchases of American agricultural products in response to the Trump administration’s plans to impose new tariffs on $300 billion in Chinese exports to the United States. |
| The report said that China had not ruled out imposing its own tariffs on newly purchased American agricultural imports and that the Chinese companies suspended their purchases. | The report said that China had not ruled out imposing its own tariffs on newly purchased American agricultural imports and that the Chinese companies suspended their purchases. |
| The escalating trade war already threatens to end what had looked to be a modest global expansion. The American economy still looks relatively strong, but growth in both the service and manufacturing sectors is slowing. The European economy has also been weak, as the trade war weighs on export-dependent economies like Germany and Italy. China’s growth has been hit by the trade war, which has compounded some of its homegrown problems. Other countries that depend on China’s voracious economic machine, such as Japan, have been hit as well. | The escalating trade war already threatens to end what had looked to be a modest global expansion. The American economy still looks relatively strong, but growth in both the service and manufacturing sectors is slowing. The European economy has also been weak, as the trade war weighs on export-dependent economies like Germany and Italy. China’s growth has been hit by the trade war, which has compounded some of its homegrown problems. Other countries that depend on China’s voracious economic machine, such as Japan, have been hit as well. |
| Yi Gang, the central bank’s governor, attributed the move in the renminbi, or RMB, to market forces, adding that many currencies had depreciated against the dollar recently. | Yi Gang, the central bank’s governor, attributed the move in the renminbi, or RMB, to market forces, adding that many currencies had depreciated against the dollar recently. |
| “I am confident that the RMB will continue to be a strong currency,” Mr. Yi said in an article published to the social media account of the central bank. | “I am confident that the RMB will continue to be a strong currency,” Mr. Yi said in an article published to the social media account of the central bank. |
| The renminbi weakened by around 1 percent against the dollar overall, a move that is not necessarily significant on its own. But the fact that Beijing allowed it to breach a level that was long considered a symbolic level raised questions about whether the move was a deliberate threat from China’s top leaders, who would most likely have to give permission to the central bank to let its currency fall to such a level. | The renminbi weakened by around 1 percent against the dollar overall, a move that is not necessarily significant on its own. But the fact that Beijing allowed it to breach a level that was long considered a symbolic level raised questions about whether the move was a deliberate threat from China’s top leaders, who would most likely have to give permission to the central bank to let its currency fall to such a level. |
| “The currency is largely controlled by the P.B.O.C., but the P.B.O.C. does not have the independence to decide on its own the level of the renminbi,” said Michael Pettis, a professor of finance at the Guanghua School of Management at Peking University, referring to the central bank. | “The currency is largely controlled by the P.B.O.C., but the P.B.O.C. does not have the independence to decide on its own the level of the renminbi,” said Michael Pettis, a professor of finance at the Guanghua School of Management at Peking University, referring to the central bank. |
| “This was clearly a decision made higher up,” Mr. Pettis said. | “This was clearly a decision made higher up,” Mr. Pettis said. |
| Mr. Trump has increasingly looked for ways to counteract China, including suggesting that the United States weaken its own currency. He recently discussed intervening in currency markets to artificially weaken the United States dollar but his administration decided against the idea, Larry Kudlow, director of the National Economic Council, told reporters. | Mr. Trump has increasingly looked for ways to counteract China, including suggesting that the United States weaken its own currency. He recently discussed intervening in currency markets to artificially weaken the United States dollar but his administration decided against the idea, Larry Kudlow, director of the National Economic Council, told reporters. |
| The president has also been jawboning the Federal Reserve to cut interest rates, including on Monday. | The president has also been jawboning the Federal Reserve to cut interest rates, including on Monday. |
| “China dropped the price of their currency to an almost a historic low,” Mr. Trump wrote on Twitter. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” | “China dropped the price of their currency to an almost a historic low,” Mr. Trump wrote on Twitter. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” |
| The Fed did cut rates last week for the first time in a decade, a move taken in part to help the American economy weather the impact of Mr. Trump’s trade war. But Mr. Trump’s trade policies are counteracting some of the Fed’s efforts to stimulate the economy. | The Fed did cut rates last week for the first time in a decade, a move taken in part to help the American economy weather the impact of Mr. Trump’s trade war. But Mr. Trump’s trade policies are counteracting some of the Fed’s efforts to stimulate the economy. |
| The American tariffs on China lower China’s growth, weakening its currency and making the American dollar relatively strong. A stronger dollar in cuts into inflation in the United States, and could the Fed to lower interest rates by more than it would otherwise to sustain the current pace of growth and price gains. | The American tariffs on China lower China’s growth, weakening its currency and making the American dollar relatively strong. A stronger dollar in cuts into inflation in the United States, and could the Fed to lower interest rates by more than it would otherwise to sustain the current pace of growth and price gains. |
| “The dollar has a very mechanical impact in the way the Fed thinks about its main policy lever,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “By doing nothing, the Fed is de facto sanctioning a tightening in policy. They would need to lower rates just to keep pace.” | “The dollar has a very mechanical impact in the way the Fed thinks about its main policy lever,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “By doing nothing, the Fed is de facto sanctioning a tightening in policy. They would need to lower rates just to keep pace.” |
| Mr. Dutta thinks the fact that the Chinese yuan is weakening and the trade war is intensifying increases the likelihood that the Fed will cut rates by half a percentage point at its next meeting, in September. | Mr. Dutta thinks the fact that the Chinese yuan is weakening and the trade war is intensifying increases the likelihood that the Fed will cut rates by half a percentage point at its next meeting, in September. |
| By lowering rates, the Fed should weaken the dollar, all else equal, though that is never the central bank’s explicit goal. But policy doesn’t occur in a vacuum, and the Fed’s recent move to drop its benchmark rate comes as economies from Japan and Australia to Europe shift toward easing monetary policy, potentially by cutting their own interest rates. | By lowering rates, the Fed should weaken the dollar, all else equal, though that is never the central bank’s explicit goal. But policy doesn’t occur in a vacuum, and the Fed’s recent move to drop its benchmark rate comes as economies from Japan and Australia to Europe shift toward easing monetary policy, potentially by cutting their own interest rates. |