Tuesday, August 6, 2019

TRADE WAR ESCALATION: The US Designates China a 'Currency Manipulator'

The Trump administration has designated  China a “currency manipulator” after the Chinese central bank allowed the renminbi to fall to an 11 year low.

The US Treasury announced its decision just hours after financial markets closed on Monday.

In its statement, the Treasury said that "China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market. In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade."

It should be noted that China's action comes after the government was blindsided by new tariffs placed by the Trump administration on Chinese goods entering the U.S. The new tariffs were announced by Trump on Thursday (An imposition of 10 per cent tariffs on US$300 billion on remaining Chinese imports not subject to earlier tariffs).

After the tariff announcement, China's government accused Trump of violating his agreement with President Xi Jinping to revive negotiations aimed at ending the trade war. Xi and Trump had agreed to hold off on implementing additional tariffs during a June meeting at the Group of 20 summit.

The Chinese government also suspended purchases of US agricultural products in response to Trump’s decision to impose more tariffs, according to China’s state-run Xinhua News Agency, which called the president’s move a “serious violation” of the agreement reached in June with Xi.

Trump earlier in the day continued his misguided attacks, via a tweet, on Chinese trade operations.

“China is intent on continuing to receive the hundreds of billions of dollars they have been taking from the US with unfair trade practices and currency manipulation,” Trump said on Monday. “So one-sided, it should have been stopped many years ago!”

Of course, Chinese "unfair trade practices and currency manipulations" benefit U.S. consumers by lowering prices and raising the general standard of living in the land of the 50 states.

All this said, Monday’s action by Treasury is mostly symbolic, requiring the U.S. administration to consult with the International Monetary Fund to try to eliminate the unfair advantage the currency measures have given a country. However, there is no doubt that Trump will continue to push the Federal Reserve to enter foreign exchange markets to drive the dollar down.

According to The Washington Post, aides have brought Trump charts to convince him that the currency charge is untrue, but the president remains firm in his beliefs, an official told to the Post.

There is a deep dive analysis at the EPJ Daily Alert on how traders and investors should react. I am taking advantage of the current turmoil to accelerate key purchases. 



  1. What else should they do in response to Trump's crazy trade war, but goose their exports in such a fashion? And anyway, isn't so much of what governments do (tariffs, subsidies, stimulus, QE, intentional inflation, embargoes, etc---not to mention currency devaluation itself) an overall manipulation and control of global trade, at the end of the day? Our own currency, the Dollar, has lost, like, 96% of its value since the creation of the Federal Reserve---is that "fair" to either U.S. citizens or to international markets?