Another Hit As The Trade War With China Heats Up

Old_Joe

The following is a current NPR news article. It has been lightly edited for brevity.

Stocks continue to tumble around the world Monday after China allowed its currency to slide, in the latest sign of economic tensions between Beijing and Washington.

The Dow Jones Industrial Average was down nearly 600 points in midday trading, a drop of more than 2%. The blue chip index has fallen more than 5% from last month's all-time high, while the S&P 500 index lost ground for the sixth day in a row. Technology stocks such as Apple and IBM were hit especially hard.

Earlier in the day, China allowed its currency, the yuan, to drop to more than seven per dollar, its weakest level in a decade.

China also said it asked state-owned firms to stop buying U.S. agricultural products, Bloomberg reported. It's the latest blow to American farmers, who have seen prices fall sharply as a result of friction between the U.S. and its major trading partners.

The decision to let the yuan fall was widely seen as an effort by China to stem the effects of President Trump's decision last week to impose stiffer tariffs on imports from China, which also sent stocks falling on Thursday.

The decline makes Chinese imports to the United States less expensive, and thus makes U.S. companies less competitive. It also lowers profits for U.S. companies that do business in China. People's Bank of China Governor Yi Gang said China won't let the yuan become a casualty of the trade war. "I am fully confident that the yuan will remain a strong currency in spite of recent fluctuations amid external uncertainties," he said.

Still, Trump's tariffs, coupled with the yuan depreciation, have left investors concerned that the trade war is spiraling out of control. As a result, investors poured money into safe assets such as government bonds, and the yield on U.S. Treasury debt fell to its lowest level since 2016.

Mark

Nothing to see here it's all just a hoax like that global warming business.

Crash

Mark said:

Nothing to see here it's all just a hoax like that global warming business.

Grin.
I'm not complaining these days about being 60% in bonds. Technically a bit less, cuz Fund Managers are holding a bit of cash.

Old_Joe

Lashing back, China lets yuan drop, halts US farm purchases

Following are selected excerpts from a current SF Chronicle/Associated Press news article. It has been edited for brevity.

WASHINGTON (AP) — China decided Monday to meet President Donald Trump's latest tariff threat with defiance, letting its currency drop to an 11-year low and halting purchases of U.S. farm products.

The moves, which came four days after Trump threatened more taxes on Chinese imports, knocked stock markets worldwide into a tailspin. On Wall Street, the Dow Jones Industrial Average was down more than 850 points by mid-afternoon. Earlier, stocks tumbled from Shanghai to London on fears the escalation in U.S.-China trade tension will drag down a global economy that is already weakening.

Also Monday, China's official Xinhua news agency reported that Chinese companies have stopped buying U.S. farm products — a direct shot at Trump supporters in rural America. Together, the currency devaluation and suspension of farm purchases suggest that China has decided to stand tough, rather than cave in Trump's threats.

"The Chinese side won't submit to the US," tweeted Hu Xijin, editor-in-chief of China's hardline Global Times newspaper.

The weaker yuan makes Chinese exports less expensive in foreign markets. It also helps offset the impact of U.S. tariffs on Chinese products. Trump promptly took to Twitter to denounce the move as "currency manipulation." He added, "This is a major violation which will greatly weaken China over time."

China's central bank blamed the yuan's drop on "trade protectionism" — an apparent reference to Trump's threat last Thursday to impose tariffs Sept. 1 on the $300 billion in Chinese imports to the United States in addition to the $250 billion he's already targeted.

It appears "the currency is now also considered part of the arsenal to be drawn upon," Robert Carnell of ING said in a report. He said Monday's move might be part of "a concerted series of steps aimed at pushing back at the latest U.S. tariffs."

The yuan has lost 5% since February.

Globally, a weaker yuan might lead to more volatility in currency markets and pressure for the dollar to strengthen, Louis Kuijs of Oxford Economics said in a report. That would be "unwelcome in Washington," where Trump has threatened to weaken the dollar to boost exports.

A weaker dollar "would be bad news" for Europe and Japan, hurting demand for their exports at a time of cooling economic growth, Kuijs said.

The Chinese are well aware of the pain the trade war is causing American farmers, a loyal part of Trump's political base. Their retaliatory tariffs on $110 billion in U.S. products targeted soybeans and other key agricultural products. To ease the pain in rural America, Trump has rolled out two packages of farm aid worth a combined $27 billion.

Monday's Xinhua report said that Beijing would "not rule out the possibility of levying additional tariffs" on U.S. farm imports. Xinhua said Trump's plan to tax another $300 billion in Chinese imports "seriously violated" a ceasefire agreed to in June by Trump and Chinese President Xi Jinping.

Mark

Those farm aid packages are worth less than a placebo for cancer treatment unless you're a mega-farm operator.

The Toll of the Trade War (at least so far)

Old_Joe

Treasury Department designates China a ‘currency manipulator,’ a major escalation of the trade war

Following are selected excerpts from a current Washington Post news article. The article has been substantially edited for brevity.

BREAKING: A Treasury Department statement said that China had manipulated the exchange rate between its currency and the U.S. dollar to gain an “unfair competitive advantage.”

The move follows the biggest one-day stock market loss of 2019, and stoked fears that a commercial dispute with no end in sight would do significant damage to a slowing global economy. China answered President Trump’s latest tariffs on Monday by allowing its tightly-controlled currency to slide to an 11-year low against the dollar, a move that threatened to turn the U.S.-China trade conflict into a global economic contagion.

Treasury’s view was potentially even more important on Monday, because Trump alleged China was manipulating its currency, a practice that is expressly in the department’s purview.

The currency shift also will effectively counter the Federal Reserve’s recent interest rate cut by leading to tighter financial conditions in the United States, said Robin Brooks, chief economist of the Institute of International Finance.

As of midafternoon, all three major U.S. stock indexes were having their worst day of 2019, falling more than 3 percent — fresh off having their worst week of the year. The Dow Jones industrial average was down more than 800 points, or more than 3 percent. The Standard & Poor’s 500 was off by nearly 93 points, or 3.1 percent, and the tech-heavy Nasdaq was down nearly 303 points, or nearly 3.8 percent. — a six-day losing streak. Trade bellwethers Caterpillar and Boeing were down 2 percent.

The yuan’s move will likely make it difficult for developing countries that need to cut interest rates to spur growth, such as India. Instead, they will pressure to raise interest rates to attract investment, a move that would further curb growth.

China’s central bank said it was confident it could keep the currency at a “reasonable and balanced level.” Beijing is expected to try to prevent an unrestrained plunge by the yuan, fearing it would encourage Chinese citizens to take their wealth out of the country, economists said.

The yuan has actually held up better against the surging dollar than most U.S. trading partners. Its year-to-date decline against the dollar of 2.4 percent is much less than the currencies of two U.S. allies, the Taiwan dollar at 3.4 percent and the South Korean won at 8.6 percent.

Beijing appeared to mount other forms of retaliation on Monday. The government has asked state-owned firms to stop their U.S. agricultural purchases, according to a Bloomberg report Monday that was widely cited by Chinese media. The crop purchases, which came from states that comprise Trump’s political base, were supposed to be a sign of Chinese goodwill as trade talks progressed.

rsorden

OK, so before China imposed tariffs on soybeans & other ag goods. Now they've totally stopped importing ag goods. Doesn't seem to make much sense. But heck, I wish Trump would up the tariffs to 50% or more on ALL Chinese goods...watch the yuan tumble & it's people cry out. The US will be ok, the Chinese need our consumers more than we need theirs, just look at the trade imbalance.

rono

Howdy folks,

The Chinese do not want to lose face. The Fed raising rates 25 bps, gave Trump cover to raise the tariffs on the Chinese. They must respond or lose face. Weaponizing the currency and stopping the purchase of Roundup ready Soybeans enables them to save face. Now Trump loves this because he WANTS to devalue the dollar because in his economic world view this would be a good thing - sort of like trade wars and higher tariffs are good things.

We're spiraling down the rat hole and hopefully, all y'all realize the Chinese nuclear option is to sell Treasuries . . . of which they own a whole steeenking pot full. Geez, that might also devalue the dollar.

Tariffs are a tax on your people and trade wars have ALWAYS ended in economic disaster - at least for the last 2,500 years or so. Read the Frogs some time about a government debasing their currency.

Idiots,

and so it goes,

peace,

rono

MikeM

With all that said @rono, may be time to up my gold play (IAU)! How about you? Can't control the idiots so might as well understand the the game.

BenWP

@rono is right. If trade wars made sense there would be warriors whom we admire and honor.

rono

Howdy,
As noted in an earlier post, I started a momentum play in the metals as week or so back. I am particularly riding the junior silver miners as that's where the most leverage is from my perspective. As I type, we're breaking resistance at 1500 and 17. If this holds fasten your seat belts.

And so it goes,

Peace,

Rono