Trump blasts China, EU for keeping currencies low

US President Donald Trump also criticised the US Federal Reserve for raising interest rates, when it hiked its benchmark rate to a range of between 1.75 per cent and 2 per cent.
US President Donald Trump also criticised the US Federal Reserve for raising interest rates, when it hiked its benchmark rate to a range of between 1.75 per cent and 2 per cent. PHOTO: EPA-EFE

He accuses them of gaining trade advantage, and also slams Fed for raising interest rates

US President Donald Trump has stoked fears of a currency war, on top of a trade war that has already sent jitters across markets.

He not only warned that he was prepared to expand tariffs against China, but also blasted China and the European Union for keeping their currencies low to gain a trade advantage.

He also criticised the US Federal Reserve for raising interest rates last Wednesday, when it hiked its benchmark rate to a range of between 1.75 per cent and 2 per cent.

"China, the European Union and others have been manipulating their currencies and interest rates lower, while the US is raising rates while the dollar gets stronger and stronger with each passing day - taking away our big competitive edge," he tweeted last Friday. "As usual, not a level playing field."

"The United States should not be penalised because we are doing so well. Tightening now hurts all that we have done. The US should be allowed to recapture what was lost due to illegal currency manipulation and bad trade deals. Debt coming due and we are raising rates - Really?" he added.

The People's Bank of China (PBOC), the country's central bank, on Friday steered the yuan 0.9 per cent lower - weakening the currency the most in two years.

The move came as Mr Trump, in an interview with CNBC aired last Friday morning, said he was willing to expand tariffs to US$500 billion (S$681 billion) worth of Chinese imports - which would cover virtually all of them.

"Look, I'm not doing this for politics," Mr Trump said. "I'm doing this to do the right thing for our country. We've been ripped off by China for a long time. And I told that to President Xi," he added, referring to his Chinese counterpart Xi Jinping.

Mr Trump has had longstanding complaints against China and the EU. During his 2016 campaign for the White House, he pledged to label China as a currency manipulator on his first day in office. He has not done so thus far.

Mr Boris Schlossberg, managing director at BK Asset Management, told French news agency Agence France-Presse: "The Chinese authorities have been responding to Mr Trump's threat of tariffs (by) continuously devaluing the yuan, a policy move that has the impact of making exports into China more expensive.

"Trump has been clearly bothered by this tactic and (Friday's) comments reflected his frustration at losing the battle in the trade war."

But the dollar has essentially been strengthening against all currencies, and over the last couple of years, China actually intervened in currency markets to ensure the yuan did not drop further.

The fact that the Chinese currency was weakening was not unusual, Dr Fred Bergsten, a senior fellow and director emeritus at the Peterson Institute for International Economics, told the Politico journal.

"The question is whether the Chinese officials have done anything deliberate to push it down," he said.

US Treasury Secretary Steven Mnuchin, in Buenos Aires yesterday for the Group of 20 meeting of finance ministers and central bank governors, was asked if he was concerned that China might be using its currency as a weapon in the escalating trade fight with the US.

While insisting that Mr Trump was not trying to influence currency markets, he told Reuters news agency: "I'm not saying whether it's a weapon or not a weapon. There's no question that the weakening of the currency creates an unfair advantage for them.

"We're going to very carefully review whether they have manipulated the currency."

A version of this article appeared in the print edition of The Sunday Times on July 22, 2018, with the headline 'Trump blasts China, EU for keeping currencies low'. Print Edition | Subscribe