President Trump slams China early Monday morning for allowing the yuan to tumble below a key level.
In a Twitter post, Trump called it “currency manipulation”. He continued, “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
Trump’s remarks lambasting China come after the yuan was weakened past seven per US dollar for the first time in over a decade. This was speculated to be in apparent retaliation to Trump escalating the trade war. Global equities fell as the yuan tumbled further.
In an unprecedented move last week, Trump announced that he would be slapping a 10% tariff on $300 billion worth of Chinese goods starting September 1. This was after representatives from both countries met for in-person trade talks for the first time in months.
In previous years, the People’s Bank of China would step in to prevent the yuan from dropping below the psychological level of seven per US dollar. Julian Evans-Pritchard, senior China economist for Capital Economics opines that the PBC was being mindful of the headlines that it would create on previous occasions. But this week’s retaliatory move might indicate that China is losing patience.
A weaker Chinese yuan would make goods from the country cheaper and more attractive to foreign buyers. This would exacerbate the divide of the US trade deficit even further. In recent months, Trump has demanded that the Federal Reserve devalues the US dollar to make America more competitive with other countries who he accuses of unfairly devaluing their currencies against the US dollar.
Trump has petitioned the Federal Reserve to lower the benchmark interest rate to weaken the dollar’s relative valuation. Federal Reserve chairman Jerome Powell hit back saying that US central bankers “certainly do not target the level of the dollar and that the Treasury Department is responsible for exchange rate policy – full stop.”
During the course of his term, Trump has repeatedly accused China for allegedly undervaluing its currency and labeled the country a currency manipulator. Earlier this year however, Trump backtracked on those opinions and decided not to label China or any other country a currency manipulator, but placed the country on his watch list for potentially unfair currency practices.
In a statement released Monday , the People’s Bank of China denied any intentional weakening of the yuan as retaliation against the trade policies of the US. They went on to say that “they would not engage in competitive devaluation or use the exchange rate as a tool to deal with external disturbances such as trade disputes.”
