The US Treasury Department has labeled China a currency manipulator in the latest escalation of the US-China trade war. A statement released by the Treasury accused Beijing of “manipulating its currency to gain an unfair advantage in international trade.” President Trump has accused China of being a currency manipulator ever since he started running for office. He even promised to label Beijing this way once he was elected into office but backtracked after making a deal with Chinese telecoms giant Huawei.
Despite this, the latest move by the Treasury Department is a clear indication that the countries are not ready to back down as they seek favorable trade terms. The People’s Bank of China on Monday set the price of the Yuan to below 6.90. This was the lowest it has been against the US dollar in 11 years. But this gives China an extra edge in the war.
By lowering its currency, Beijing effectively lowers the cost of its exports. The move is likely to counteract the 10% tariff imposed by the White House on $300 billion worth of Chinese goods. The latest escalation in trade tensions between two of the largest global economies did not go unnoticed, especially by investors. US markets including the Dow Jones and the S&P 500 took a dive on Monday but they have since recovered.
The Dow closed 2.9% lower on Monday as the S & P 500 dropped 3%. The tech-heavy NASDAQ was also not spared falling by 3.5% on Monday’s trading. The impact was felt outside the US as well. In Europe, the FTSE was down 2.5% while the German DAX closed on the red too, dropping 1.8% during the day. The French CAC, on the other hand, was down 2.2%. Major Asian markets were also caught in the crossfire as Hong Kong’s Hang Seng dropped 5.15%. The Japanese Nikkei was down 2.65% as the Korean KOSPI shed 2.28% on Monday.
Analysts are not expecting the trade war to go on further. But even then, it doesn’t seem like any trade deal between Washington and Beijing is close. The Trump administration had considered tariffs as the ultimate “atomic option” to force China into a deal. It was supposed to be the final move that would finally make China capitulate. However, even after the tariffs, it seems China has the means to fight back. The two countries are now far away from a trade deal than they have ever been since the trade tensions started early last year.
Analysts are not confident that a deal will be on the table before the 2020 election. This could be problematic for Trump in the end. Many analysts think that it would have been in the best interest of the president’s reelection hopes to ease off the trade tensions with China. But that is not going to happen. China is also inclined to wait until after 2020 before it makes any major concessions on trade with the US. But so far, it seems there is no end in sight.