The coming Trump recession? Yuan remains over 7 to American dollar

Business & Technology
An employee at a currency exchange store counts Chinese one-hundred yuan and U.S. one-hundred dollar banknotes in Hong Kong, China, on Wednesday, Aug. 12, 2015. Photographer: Xaume Olleros/Bloomberg
/ Credit: An employee at a currency exchange store counts Chinese one-hundred yuan and U.S. one-hundred dollar banknotes in Hong Kong, China, on Wednesday, Aug. 12, 2015. Photographer: Xaume Olleros/Bloomberg

“Donald Trump’s trade war with China is spiraling out of control” says John Cassidy in the New Yorker, which seems about right. Cassidy cites a tweet from Lawrence Summers, the Harvard economist who served as the director of the National Economic Council during the first Obama administration:

We may well be at the most dangerous financial moment since the 2009 Financial Crisis with current developments between the US and China.

You’ll remember that the yuan weakened past 7 to the American dollar on Monday, for the first time since 2008 during the financial crisis. Why did China do it? “The People’s Bank of China attributed [it] to factors including unilateral and protectionist measures, as well as the expectation of additional tariffs on Chinese goods, according to an online statement,” according to Xinhua (or see this detailed Q&A in Chinese).

In another act of retaliation, China canceled purchases of soybeans and other crops that Trump had earlier cheered plans for, according to Bloomberg.

The news “sparked a worldwide sell-off in markets,” reports CNN. “The Dow closed down 767 points, and the Nasdaq Composite — a proxy for the technology companies that will be most harmed by a trade war — suffered its longest losing streak since November 2016.” Further gloom from the financial sector: “China retaliation is ‘11’ on scale of 1 to 10, Wall Street warns,” says Bloomberg, citing a number of nervous analysts. “Morgan Stanley thinks a global recession will come if the trade war escalates through the U.S. raising tariffs to 25 percent ‘on all imports from China for 4-6 months,’” reports CNBC.

“A forever trade war looms as Trump deepens battle with China” is the headline of a Bloomberg piece on the latest state of play. Looms? We’ve been pessimistic since July 6, 2018, when the first Trump tariffs were placed on Chinese goods. For many months now, we have been arguing that there that there is no end in sight.

Trump is fuming. He still does not understand how tariffs work. From his Twitter account:

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!

Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars! China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!

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. So one-sided, it should have been stopped many years ago!

Yesterday marked day 398 of the U.S.-China techno-trade war by our count. No end is in sight, and a global recession is looking more likely by the day: See this summary on Barron’s of comments from analysts at big Wall Street banks.

On that cheery note, here’s more news:

  • The U.S. has slapped new tariffs on $4.4 billion of wooden cabinets imported from China, according to Bloomberg. The move was in response to a petition from the American Kitchen Cabinet Alliance.
  • Investments by American pension funds and college endowments into the high-growth Chinese tech sector are coming under scrutiny for “helping fund the rise” of China’s technology companies, reports Bloomberg. Bloomberg isn’t the first to highlight this, however: BuzzFeed News reported in May that US money is funding the technology behind China’s surveillance state.
  • “New McCarthyism feared in U.S. academy” is the title of a compilation of links and reporting on racial profiling and unfair scrutiny of Chinese students, scientists, and scholars on China Digital Times. See also our own Sinophobia Tracker.
  • The U.S. might sanction China National Petroleum Corp (CNPC), the country’s largest oil company, for buying Iranian oil, according to via Yahoo.
  • China’s major state-owned banks have been supporting the yuan to slow the currency’s decline, reports Reuters. The report cites a note from S&P Global Ratings: “We believe China will manage the pace but not the direction of change for the renminbi.”
  • “China is ‘blackmailing’ India into using Huawei for its 5G infrastructure, an influential U.S. Congressman [Jim Banks] alleged Tuesday, even as Beijing hoped that New Delhi will not succumb to any pressure from America,” according to the Hindustan Times.

Photo: Xaume Olleros/Bloomberg