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China Hits Back at Trump With Weaker Yuan, Halt on Crop Imports

Economy Aug 05, 2019 12:48AM ET
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(Bloomberg) -- After trying to placate Donald Trump for more than a year only to face tariffs on virtually all its shipments to the U.S., China is signalling it’s ready to play hardball.

In a stark escalation of the trade war that has roiled financial markets and weighed on economic growth worldwide, Beijing allowed the yuan to tumble to its weakest level in a decade against the dollar and asked state-owned companies to suspend imports of U.S. agricultural products.

The moves emerged within days of Trump’s threat to impose additional tariffs on China and struck at the heart of two of the U.S. president’s fiercest criticisms -- that Beijing manages its currency unfairly to help exporters and has failed to keep promises to boost purchases of U.S. crops after a trade truce in June. Investors responded by dumping Asian stocks and currencies in favor of haven assets including the Japanese yen, U.S. Treasuries and gold.

"It’s among the worst-case scenarios," said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. "First markets sell off, then Trump wakes up and this all gets far, far worse."

Trump last week proposed adding 10% tariffs on another $300 billion in Chinese imports from Sept. 1, ramping up the trade war between the world’s largest economies shortly after the two sides restarted talks. Bureaucrats in Beijing were stunned by Trump’s announcement, according to Chinese officials who’ve been involved in the trade talks, and Beijing has pledged to respond if the U.S. insists on adding the extra tariffs.

Market Turmoil

The MSCI Asia Pacific Index headed for its biggest decline since March on Monday, with shares slumping more than 2% in markets from Tokyo to Hong Kong and Seoul. Equities in Shanghai saw a more modest drop amid speculation that state-linked funds may act to prop up the market.

The yuan tumbled 1.2% to 7.0275 a dollar at 12:16 p.m. after the People’s Bank of China set its daily reference rate at a weaker level than 6.9 for the first time since December. The offshore yuan sank as much as 1.9% to a record low.

"Breaking seven is due to a mix of factors: an escalation of trade war, the softening of China’s economy and a willingness for the PBOC to tolerate higher volatility for the yuan," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "The PBOC has entered uncharted waters, so it has to manage expectation carefully."

The central bank attributed the yuan move to protectionism while saying it can still maintain a steady currency. The yuan continues to be stable and strong against a basket of currencies, the central bank said in a statement, adding it’ll continue to create new tools for any necessary measures in response to the “positive feedback” loop in the yuan market.

Corn and soybean futures fell after Bloomberg News reported that China’s state-run agricultural firms have stopped buying American farm goods, and are waiting to see how trade talks progress.

Trump has repeatedly complained that China hasn’t made the “large quantities” of agricultural purchases that he claims President Xi Jinping promised when they met in Osaka at the G-20 summit. China’s commerce ministry didn’t respond to a fax seeking comment.

"China is giving up on its softer diplomatic strategy and is no longer willing to be Trump’s punching bag," said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. "Trump’s tariffs threats are backfiring and triggering a full-scale trade war."

China Hits Back at Trump With Weaker Yuan, Halt on Crop Imports
 

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Comments (12)
milena villa escobar
milena villa escobar Aug 08, 2019 11:01AM ET
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the tone of this article is why I do not use this platform as a news Outlet.  it's just another Trump bashing presentation. Only a *******cannot see what you people are trying to do
Frank ruffler
Frank ruffler Aug 07, 2019 2:06PM ET
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No the US Citizen will pay a Higher bill
Frank ruffler
Frank ruffler Aug 07, 2019 2:03PM ET
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and the Dollar IS to high
Matthew NT
MatthewBT Aug 05, 2019 6:48AM ET
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There is no point trying to placate Trump. Look at how he treated Europe after Europe foolishly tried to appease him with beef import deal. He basically just kept threatening tariff & asked for even more concessions. What Trump is doing is really destroying US credibility. Not that he cared about US really. He is making a *******manipulating the market with these issue.
YC Teng
YC Teng Aug 05, 2019 3:27AM ET
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As I commented last week, President Trump basically scored multiple own goals with the latest Tarriff hike threat.Hm... Amateurish at best!
jomar sarmiento
jomar sarmiento Aug 05, 2019 2:22AM ET
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This could develop into the drop like the one in 2015.
Lloyd McCord
Lloyd McCord Aug 05, 2019 2:16AM ET
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Another brilliant move by Winnie the Xi. Allow the yuan to devalue so you can offset tariffs, but simultaneously cause the world to dump yuan. Brilliant! Also, let your people buy higher priced and lower quality grain. Brilliant again! Hubris is a bad thing to have rule your emotions when you're the dictator of an autocratic regime with way more than enough internal problems already. He should have continued to be patient, but the excitement of showing off his big guns was just too tempting.
Rob Olson
Rob Olson Aug 05, 2019 1:50AM ET
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This is defining moment in not just investing and is bigger than Trump ... this is economic warfare strategies
Changyi He
Changyi He Aug 05, 2019 1:30AM ET
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Fed will have to cut the rates again in Sep. Stagflation here we go
Kamlesh Jha
Kamlesh Jha Aug 05, 2019 1:16AM ET
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Trump is fool doesn't understand that in this age of globalization, you cannot have protectionism policy, it hurts global growth, moreso for US. it's never late Trump should wake up and realize and rectify his mistake before he loses his second term.
 
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