Published: Fri, August 09, 2019
Global Media | By Garry Long

Trade war tensions ease a bit as China stabilizes currency

Trade war tensions ease a bit as China stabilizes currency

President Trump and his advisers said Tuesday the US has the upper hand in its escalating trade and currency war with China, with the president suggesting he will impose more tariffs on Beijing next year if necessary.

The offshore yuan fell as low as 7.1397 per dollar in early Asian trade on Tuesday before clawing back most of the losses after China's central bank said it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.

The United States urges a currency manipulator to redress situations such as currency undervaluation and an excessive trade surplus within one year.

Oil prices also weakened, with global benchmark Brent crude slipping to seven-month lows, as trade tensions between the US and China intensified worries about weakening world demand.

The cost saw an increase of 2.5 billion dollars, or 74 percent, from the same month past year, said anti-tariff advocacy group Tariffs Hurt the Heartland. China has halted United States agricultural purchases and raised the possibility of additional tariffs on U.S. farm products.

Earlier Monday, China had allowed its currency to weaken to an 11-year low, a move that gives its exporters a price edge in world markets and eases some of the damage from US tariffs on Chinese products.

In a move that breaks with decades of US policy, Trump seemed to call for a weaker dollar to help American companies compete.

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He insisted that there is scope to offer clarifications on the deal and to make changes to the future relationship. But if they refuse to move. then we'll leave without a deal. "It is simply saying "No, we don't want to talk".

He said China would "abide by the spirit of the G20 leaders' summit" in June and not engage in competitive devaluation or use exchange rates to deal with problems such as trade disputes.

The People's Bank of China sets the yuan's exchange rate each morning and allows it to rise or fall two percentage points during the day. China's central bank took steps overnight to prevent a freefall in the country's currency.

The central bank held a meeting with a number of foreign exporters in Beijing Tuesday, at which officials also said that companies' ability to buy and sell dollars would remain normal, according to a statement provided to Bloomberg. That would allow the yuan to slide to below 7.1 to the dollar while staying within the trading band. "If markets drive dollar-yuan rate even higher and out of hand, I don't think the PBOC will sit there doing nothing".

Presidents have often used the twice-a-year currency report as a diplomatic tools while engaging with countries that are seen as having exchange rates that harm usa jobs and economic growth. It may be created to make exports more competitive, to avoid inflation or reduce capital inflows. But regulators are trying to make the state-controlled exchange rate more responsive to market forces, which are pushing the yuan lower.

With this latest tariff, varying levels of taxes and tariffs have been applied to almost all Chinese goods entering the United States, including now clothing and consumer goods such as mobile phones and laptops.

A Reuters estimate had predicted that the PBOC would fix the Yuan at 6.9994 against the dollar on Wednesday.

Kudlow said Trump was open to negotiations, which are next slated for September when a Chinese delegation will travel to Washington. But it raises the risk of inflaming American complaints. It would raise borrowing costs by encouraging an outflow of capital from the world's second-largest economy.

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