The trade war is getting worse by the day.
After President Trump announced 10% tariffs on $800 billion worth of Chinese imports, China responded by halting U.S. agricultural products. It also weakened the yuan. That’s what lead to the Dow plummeted more than 800 points on Monday.
Now, the U.S. Treasury Department has designated China as a “currency manipulator” – a move the White House hasn’t made since the days of the Clinton Administration. “Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator,” the Treasury Department said as quoted by CNBC.
“As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
Depreciation of Yuan Lead to Massive Sell Off
As China depreciates its currency, it could now raise the potential of another retaliatory round of tariffs from the White House. It could also pressure the Federal Reserve to consider another round of interest-rate hikes, given the potential shock to the global system.
The announcements from Beijing represent a direct shot at the White House and seem designed for maximum political impact,” said Chris Krueger, strategist at Cowen Washington Research Group, as quoted by The Wall Street Journal.
“We expect a quick—and possibly intemperate—response from the White House, and consequently expect a more rapid escalation of trade tensions.”
Let’s just hope trade tensions cool off soon. Or we could see more pain in the markets.