Trump says it's "fine with me" if China doesn't want to trade with the United States. China takes steps to make sure U.S. Farmers get a painful lesson as to what no trade will mean. Currency war begins!
By James DiGeorgia
President Trump was advised against escalating his trade war with China by some of his White House advisors. He ignored their advice not to threaten to put 10% tariffs (import taxes) on an additional $300 billion of their imports beginning September 1, 2019. Trump now faces an economic nightmare of a complete shutdown of Chinese agriculture purchases and currency war.
China responded to Trump’s threats by letting its currency the Yuan tumble to the weakest level in more than a decade and ordered state-owned companies to suspend imports of U.S. agricultural products. This will also fan the flame of Chinese nationalism and rally the country’s population behind President Xi.
Trump response was once again to accuse China of “currency manipulation,” which he says “will greatly weaken China overtime!”
However, China isn’t manipulating its currency, it’s doing the opposite, and its Central Bank is refusing to enter the international currency markets to support the Yuan. A weaker Yuan could offset any tariffs (import taxes) imposed by President Trump.
Trump’s threat according to the country’s official news agency also violated his June agreement (handshake) with President Xi and made a mockery of Trump’s previous criticisms that Beijing has not been keeping its promises including to buy more U.S. crops. Trump’s threats position China to completely end all agriculture purchases.
Trump has also put Xi in position to raise hostilities with Taiwan and Hong Kong and to demonize Trump as a liar.
The Yuan’s collapse signals that China is willing to wage a currency war that could dramatically raise the stakes of this economic conflict. The Dow Jones plummeted more than 600 points while emerging-market currencies sank on concern a prolonged conflict between the superpowers will weigh on global economic growth, while haven assets including the Japanese yen, U.S. Treasuries and gold climbed. Investors increased bets on Federal Reserve interest-rate cuts.
Relying on the Federal Reserve to cushion an accelerating global economic slowdown has its limits. Trump could be setting up a 2020 global recession that lowers U.S. global economic growth to the point that it goes negative.
Michael Every, head of Asia financial markets research at Rabobank in Hong Kong was quoted in the media as saying…
“It’s among the worst-case scenarios…First markets sell-off, then Trump wakes up, and this all gets far, far worse.”
Every’s comments sum up what many economists who are saying Trump is way over his head, doesn’t understand international trade or financial markets much less the function of the Federal Reserve.
Beijing’s People’s Bank of China Governor Yi Gang said in a written statement Monday night that China wouldn’t use the Yuan as a tool to deal with trade disputes….
“I am fully confident that the Yuan will remain a strong currency in spite of recent fluctuations amid external uncertainties,”
Yi added that the Chinese central bank would work to ensure “reasonable and legal demand” by companies and the public for foreign exchange. The problem is this statement may be interpreted as being the Chinese will not interfere in the international currency market but will guarantee liquidity. It’s not a guarantee that China will support the Yuan.
Trump and Senate Majority Leader are likely to face a twist in their next attempt to aid farmers caught up in this trade war. Democrats could purposely exclude red-state farmers from economic relief, much in the same way Trump and GOP controlled Congress cut blue states out of tax relief in 2017 as a vendetta for those states not voting for President Trump.
This means the next bill to help keep farmers heads above water passed by the House of Representatives could exclude relief for farmers in Kentucky, Tennessee, Mississippi, Texas, Arkansas, Oklahoma, Idaho, Utah, South Carolina, Nebraska, Georgia, North and South Dakota; states without any Democrat Senators of governors in office.
This legislative strategy could act as leverage in states like Alabama, Georgia, Ohio, Georgia and Texas to re-elect or elect Democrats to statewide and Congressional offices, as well as flip blue in the 2020 election for the Democrat nominee for President with the promise that if they are elected, farmers will receive the financial aid retroactively. It would be a dirty political move, but then again GOP lawmakers already used this strategy.