Trump dismisses fears of protracted trade war despite China's warning

A container ship sailing out of Yangshan Deepwater Port in Shanghai yesterday. US President Donald Trump said last week that he would slap a 10 per cent tariff on a further US$300 billion (S$415 billion) worth of Chinese imports starting on Sept 1. P
A container ship sailing out of Yangshan Deepwater Port in Shanghai yesterday. US President Donald Trump said last week that he would slap a 10 per cent tariff on a further US$300 billion (S$415 billion) worth of Chinese imports starting on Sept 1. PHOTO: BLOOMBERG

Beijing says labelling it a currency manipulator will cause global chaos

WASHINGTON/BEIJING/ SHANGHAI • US President Donald Trump has dismissed fears of a protracted trade war with China despite a warning from Beijing that labelling it a currency manipulator would have severe consequences for the global financial order.

Mr Trump, who announced last week that he would slap a 10 per cent tariff on a further US$300 billion (S$415 billion) worth of Chinese imports starting on Sept 1, tweeted that "massive amounts of money from China and other parts of the world" were pouring into the US economy.

He also pledged to stand with American farmers in the face of Chinese retaliation. China has halted US agricultural purchases and raised the possibility of additional tariffs on US farm products.

US farmers, a key political constituency for Mr Trump, have been among the hardest hit in the trade war. Shipments of soya beans, the most valuable US farm export, to top buyer China sank to a 16-year low last year.

While Mr Trump played down the prospect that the trade dispute could be drawn out, St Louis Federal Reserve Bank president James Bullard said the US central bank may be stuck with a volatile global trade environment for years.

"I think of trade regime uncertainty as simply being high in the current environment," Dr Bullard said at a National Economists Club luncheon. "I do not expect this uncertainty to dissipate in the quarters and years ahead."

The US Treasury Department said on Monday it had determined for the first time since 1994 that Beijing was manipulating its currency.

TRUMP'S RESPONSE

Massive amounts of money from China and other parts of the world are pouring into the United States for reasons of safety, investment and interest rates! We are in a very strong position. Companies are also coming to the US in big numbers. A beautiful thing to watch!

US PRESIDENT DONALD TRUMP, in a tweet on Tuesday.

It acted after China decided to let the yuan fall below the key level of seven to the US dollar for the first time in more than a decade, rattling financial markets and dimming hopes for an end to a trade war that has dragged into a second year.

China's central bank said on Tuesday that Washington's currency move would "severely damage international financial order and cause chaos in financial markets", while preventing a global economic recovery.

 
 
 
 

China "has not used and will not use the exchange rate as a tool to deal with trade disputes", the People's Bank of China said.

The Chinese monetary authorities let the yuan fall past the closely watched seven-to-the-dollar level on Monday so that markets could factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters.

China's major state-owned banks have been active in the yuan forwards markets this week, sources said, using swaps to curb greenback supply as the authorities sought to slow the currency's decline after its break past the seven-to-the-dollar threshold.

Four sources with knowledge of the matter told Reuters that state banks were seen swapping yuan for dollars in onshore forwards market to support the Chinese unit.

The Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for talks next month, Mr Larry Kudlow, director of the White House National Economic Council, told CNBC on Tuesday.

The US economy was still in good shape and he saw no signs of a global recession on the horizon despite growing concerns that the US-China stand-off is slowing manufacturing activity around the world. "The economic burden is falling vastly more on them (China) than us," Mr Kudlow said. Washington was forced to make the currency designation given a 10 per cent drop in China's currency since April last year, he said, adding that other members of the Group of Seven industrialised countries supported the action.

Mr Roger Altman, a former Treasury Department official and founder and chief executive of Evercore investment firm, told CNBC he was sceptical that Mr Trump would allow prolonged instability in the financial markets since his reputation was staked so closely to economic growth and the success of the US stock market.

However, he said, China showed no signs of reforming its approach to technology transfer, intellectual property theft and cyber attacks.

"Unless that changes, we're headed for a form of Cold War with China," Mr Altman said.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on August 08, 2019, with the headline 'Trump dismisses fears of protracted trade war despite China's warning'. Print Edition | Subscribe