A22 EZ RE THE WASHINGTON POST.TUESDAY, AUGUST 6 , 2019
against the surging dollar. Its
year-to-date decline against the
dollar of 2.4 percent is much less
than that of the currencies of two
U.S. allies, the Taiwan dollar at
3.4 percent and the South Korean
won at 8.6 percent.
“The Chinese have been resist-
ing the pressure,” said Chandler.
“Trump’s tweets last week and his
insistence on talking the dollar
down made them just give up.
They surrendered to market forc-
es.”
Trump’s latest tariff escalation,
which the president announced
Thursday on Twitter, sparked a
rush of Chinese state media com-
mentary suggesting that the Chi-
nese government was caught flat-
footed. State media lashed out at
the United States on Sunday, ac-
cusing it of negotiating in bad
faith and suggesting that Beijing
may hold out from negotiating
further with the Trump adminis-
tration.
Beijing appeared to mount oth-
er forms of retaliation Monday.
The government has asked state-
owned firms to stop their U.S.
agricultural purchases, according
to a Bloomberg News report that
was widely cited by Chinese me-
dia. The crop purchases, which
would benefit many states that
make up Trump’s political base,
were to be a sign of Chinese
goodwill as trade talks pro-
gressed.
Zippy Duvall, president of the
American Farm Bureau, called
the Chinese move “a body blow to
thousands of farmers and ranch-
ers who are already struggling to
get by.”
Agricultural exports to China
fell $1.3 billion during the first
half of the year, he said, adding
that the organization fears it will
lose access to a market that was
worth almost $20 billion to farm-
ers in 2017.
“It isn’t clear right now that
either side has a plan for de-esca-
lation,” said Setser. “What makes
this different is how quickly both
sides are ratcheting up the
threats.”
[email protected]
[email protected]
[email protected]
[email protected]Joshua Dawsey, Taylor Telford and
Heather Long contributed to this
report.the Council on Foreign Relations
and a former Treasury Depart-
ment official, said the president
has limited tools to bring about a
lasting dollar decline. But even an
unsuccessful currency market in-
tervention could rattle the global
economy.
“It would signal that the U.S. is
not willing to be a global locomo-
tive in a world that still needs a
global locomotive,” he said. “The
risk is the world economy would
end up with no locomotive.”
China, for its part, has argued
that it has kept its currency at a
reasonably high level to assuage
U.S. concerns. It also fears that a
tumbling currency could spark
panic about its slowing economy
and trigger an outflow of capital.
Beijing is expected to try to
prevent an unrestrained plunge
by the yuan, fearing that would
encourage Chinese citizens to
take their wealth out of the coun-
try, economists said.
Currency markets this year
have broad dollar strength. The
greenback, reflecting the U.S.
economy’s relative strength and
nine Fed interest rate increases,
has risen against the euro, the
British pound and other major
currencies.
The yuan has held up betterDollar, who was assigned to the
U.S. Embassy in Beijing from
2009 to 2013, said: “This is clearly
bad for the U.S. economy....
You’re throwing a lot of sand in
the wheels of commerce. You’d
expect things to slow down glob-
ally, and it’ll certainly be felt by
Americans.”
Though the values of many
currencies are freely dictated by
supply and demand, China’s cen-
tral bank sets a daily target price
around which the yuan, also
known as the renminbi, can fluc-
tuate. The bank steps in when the
price strays too far. For a decade,
it has not allowed the yuan to fall
past seven to the dollar, which
financial markets consider a psy-
chologically important threshold.
China’s central bank blamed
“unilateralism, trade protection-
ism and tariff expectations im-
posed on China” for the change in
the exchange rate. The bank said
it was confident it could keep the
currency at a “reasonable and
balanced level.”
Trump has long complained
that the yuan is too weak and the
dollar too strong. He has lobbied
the Federal Reserve to cut inter-
est rates to help U.S. exporters
and boost the stock market.
Brad Setser, a senior fellow ateffectively counter the Federal
Reserve’s recent interest rate cut
by leading to tighter financial
conditions in the United States,
said Robin Brooks, chief econo-
mist of the Institute of Interna-
tional Finance.
For corporate executives, the
latest developments in the
U.S.-China dispute make the glob-
al picture more unclear. Trump’s
tariffs on products from China
and several other countries have
made it difficult to predict prices
for key industrial components
and ensure access to individual
markets, said David Loevinger,
managing director of the Los
Angeles-based TCW Group.
“The big risk is it adds another
element of uncertainty into the
global economy,” said Loevinger,
a former Treasury Department
official. “Right now, when busi-
ness thinks about making a big
investment, they look around the
world and see uncertainty every-
where.”
Consumers watching the stock
market sink will probably re-
spond by cutting discretionary
spending, removing another key
prop from the slowing economy.
“Consumption is in many ways
the bedrock of our economy,” said
Brooks.trade adviser.
Now, Trump thinks that con-
tinuing to punish China will spur
Beijing to negotiate. But some
aides fear that his hard-line
stance will backfire, said one sen-
ior adviser, describing confiden-
tial discussions on the condition
of anonymity.
Aides have brought Trump
charts to convince him that the
currency charge is untrue, but the
president remains firm in his
beliefs, the official said.
Others agreed with the presi-
dent. “It’s a good step and long
overdue, because China has been
guilty of massive currency ma-
nipulation for 20 years, and they
certainly deserve to be called out,”
said Robert Scott, senior econo-
mist at the Economic Policy Insti-
tute, a left-leaning think tank.
China did routinely intervene
in currency markets for about a
decade, until roughly 2013, but in
recent years has not done so,
several economists said. Its once-
sizable global trade surplus is
roughly one-tenth its 2007 size.
“It’s not accurate to call China a
currency manipulator because
market forces are driving their
currency down. They are not in-
tervening to push it down,” said
David Dollar, a former Treasury
Department official now at the
Brookings Institution.
The administration’s plans
were not clear, though some ana-
lysts suggested that the president
could use the designation to justi-
fy additional tariffs on Chinese
goods. Mnuchin also plans to seek
assistance from the International
Monetary Fund “to eliminate the
unfair competitive advantage
created by China’s latest actions,”
Treasury said in a statement.
But the United States is unlike-
ly to get much support. Just last
month, the IMF found in its latest
annual assessment that China’s
financial position “was broadly in
line with the level consistent with
medium-term fundamentals and
desirable policies.”
A weaker Chinese currency
will make products from the
United States more expensive
while making made-in-China
merchandise more attractive.
That will offset some of the effects
of Trump’s planned 10 percent
tariff, which is scheduled to go
into force Sept. 1.
The currency shift also willshortly before 6 p.m., capped an
unnerving 24 hours that began
with China allowing its tightly
controlled currency to slide to an
11-year low against the dollar and
continued through a nearly
1,000-point drop in the Dow
Jones industrial average.
“This is a big policy mistake.
We get recession because of pol-
icy mistakes like this,” said Allen
Sinai, chief economist and strat-
egist at Decision Economics.
“China did not actively drive its
currency down. It was a market-
driven move. Secretary
Mnuchin’s comments are totally
political.”
On Wall Street, the Dow closed
down more than 767 points, or
nearly 3 percent, and Treasury
yields plunged to their lowest
mark in almost three years as
investors anticipated trouble
ahead.
The financial meltdown fol-
lowed China’s decision to answer
Trump’s latest tariffs by allowing
its currency to fall past a key
benchmark of seven yuan per
dollar for the first time since
2008.
The central bank, the People’s
Bank of China, played down the
significance of the milestone but
linked the drop to the dispute
with Washington.
In Washington, Trump accused
the Chinese government of “cur-
rency manipulation” and said in-
correctly that the yuan was near a
“historic low.”
The currency move came after
the president announced new
tariffs Thursday on an additional
$300 billion in Chinese goods.
The latest maneuvers in Wash-
ington and Beijing underscored
the stunning deterioration in re-
lations since Trump said this
spring that the two sides were on
the verge of an “epic” trade deal.
“This puts us into a new phase,
and it’s not a good phase,” said
Marc Chandler, chief market
strategist for Bannockburn Glob-
al Forex. “It’s hard to see how
there won’t be a lot of collateral
damage.”
Trump’s push to label China a
currency manipulator has been
thwarted in the past by Mnuchin
and former aides such as Gary
Cohn, while being supported by
Peter Navarro, a White House
CHINA FROM A1
China’s yuan slides below key benchmark against dollar
BY JEFF STEINThe United States and China
just opened an explosive new
front in their broadening eco-
nomic confrontation: a currency
war.
China allowed the value of its
tightly controlled currency to fall
to an 11-year low Monday, a move
that threatens to hurt American
producers by making their prod-
ucts more expensive for Chinese
customers.
The Treasury Department re-
taliated Monday afternoon by
designating China a “currency
manipulator,” a label it has
slapped on foreign countries only
a few times.
The twin actions were widely
seen as a major escalation of the
U.S.-China trade war. Analysts
and economists said they fear
severe economic consequences
for both countries, including ad-
ditional trade restrictions that
could slow growth.
“It could get very serious if
trade tensions between China
and the U.S. morph into a curren-
cy war,” said Eswar Prasad, a
professor of trade policy at Cor-
nell University. “This could lead
the U.S. to essentially shut down
all imports from China.”
The falling value of the Chinese
currency rippled through the
global economy, leading to steep
losses on Wall Street and rattling
investors.
The fight poses several risks.
Widening America’s trade
deficit. As a candidate and in the
White House, Donald Trump has
made reducing America’s trade
deficit with China — the amount
by which the United States’ im-
ports from China exceed its ex-
ports — a central priority of his
administration.
But earlier this year, the United
States posted an approximately
$900 billion trade deficit, setting
a record. America’s trade deficit
with China is projected to balloon
over the next several years, said
Robert Scott, an economics ex-
pert at the Economic Policy Insti-
tute, a left-leaning think tank.
The depreciation in China’s
currency means American manu-
facturers will have an even hard-
er time selling their products to
China and in other markets
where Chinese producers com-
pete, experts say, further widen-
ing the nation’s trade deficit.“If China continues to devalue
its currency, it will continue to
make the trade deficit worse,”
Scott said.
Severe retaliation from the
United States. The United States
last named China a currency
manipulator in the early 1990s.
With the designation, the Unit-
ed States could impose much
more significant tariffs on China
than it has so far — which could
trigger further retaliation from
China.
“The U.S. could use the desig-
nation as a means to impose
unilateral punitive tariffs,” Pras-
ad said. “And it would certainly
also provide justification and po-
litical cover for more tariffs.”
The United States may also
appeal to the World Trade Or-
ganization for a crackdown on
China or successfully rally inter-
national allies to restrict trade
with China.
A drop in global demand. The
most dangerous potential conse-
quence of a currency battle would
be a slowing of overall economic
growth in both countries, at a
time when analysts already fear
that a global slowdown could
push the United States into a
recession.
China’s growth has already
slowed. A depreciation in its cur-
rency could hurt European man-
ufacturers who compete with
Chinese products. Wall Street
posted its worst day of 2019 so far.
Volatility indexes soared, and all
11 stock market sectors were in
the red on Monday.
“The financial instability asso-
ciated with the trade wars will
increase uncertainty and hurt
confidence and investment,
which can have a bigger impact
on the U.S. economy,” said Mark
Sobel, a former Treasury official.
The potential for higher tariffs
and a devaluation of currencies
has echoes of the steps that led to
the Great Depression in the
1930s, said Steven Kyle, an eco-
nomics professor at Cornell.
“This is EXACTLY what hap-
pened as the Great Depression
really got going in the 1930s:
Everyone erected high tariff bar-
riers and tried to out-compete
their trading partners in devalu-
ing (depreciating) their curren-
cies,” Kyle said in an email. “A few
years of that and world trade
ground to a near total halt.”
[email protected]Analysts warn of dire effects
of a U.S.-China currency war
GREG BAKER/AGENCE FRANCE-PRESSE/GETTY IMAGES
Stock prices light up a screen at a securities company in Beijing. U.S. and Asian markets were both
lower Monday as the United States and China escalated their economic dispute.Savings from Sea
to Shining Sea.
JHLFRFRP $872/RFDO2IĆFH
GEICO helps federal government employees
all across our beautiful country get their
Federal Discount on auto insurance.
Some discounts, coverages, payment plans and features are not available in all states or all GEICO companies. Discount amount varies in some states. One group discount applicable per policy. Coverage is individual. In New York a premium reduction may be
available. GEICO is a registered service mark of Government Employees Insurance Company, Washington, D.C. 20076; a Berkshire Hathaway Inc. subsidiary. © 2017