In this file:
· It's An All-Out Currency War! What Are The Next Moves?
· U.S. farmer on worsening trade dispute: “It’s like a knife in my heart”
· U.S. farmers are exasperated by latest trade war moves: 'Another nail in the coffin'
· Dow closes higher after China blinks
· China just showed why Trump can't win with tariffs
It's An All-Out Currency War! What Are The Next Moves?
Frank Holmes, Contributor, Great Speculations, Forbes
Aug 6, 2019
“A currency war, fought by one country through competitive devaluations of its currency against others, is one of the most destructive and feared outcomes in international economics.”
So says James Rickards in his bestseller, Currency Wars: The Making of the Next Global Crisis. Written in 2011, Rickards’ book feels particularly prescient today, given China’s recent devaluation of its currency against the U.S. dollar—just the latest volley in the two economies’ escalating trade tensions.
The idea of a currency war “revives ghosts of the Great Depression, when nations engaged in beggar-thy-neighbor devaluations and imposed tariffs that collapsed world trade,” Rickards continues. “Nothing positive ever comes from a currency war.”
Be that as it may, China’s central bank on Monday allowed its currency, the renminbi, also known as the yuan, to weaken past 7.0 versus the dollar, a level unseen since 2008. A weaker currency gives China certain advantages over the U.S., including making its goods more competitively priced for foreign buyers.
The move follows President Donald Trump’s announcement that the U.S. will be imposing an additional 10 percent tariff on the remaining $300 billion of imports from China, effective September 1. This is on top of the 25 percent tariff that’s already in place on $250 billion worth of Chinese-made goods.
Global stocks sold off dramatically on Monday, as investors interpreted China’s decision as a sign that the trade war between the two countries is far from over. Late in the day, Treasury Secretary Steven Mnuchin made the bold move to designate China as a currency manipulator, writing that the purpose of the devaluation “is to gain unfair competitive advantage in international trade.”
It’s the first time since the Clinton administration that a country has been slapped with the label. It also makes good on one of Trump’s campaign promises, if you can remember that far back.
Beijing Turns It Up to 11
According to Julian Evans-Pritchard, senior China economist at Capital Economics, Beijing “has effectively weaponized the exchange rate, even if it is not proactively weakening the currency” through direct intervention. The research firm sees the renminbi ending the year even lower at 7.3 to the dollar.
Meanwhile, Cowen Washington Research Group’s Chris Krueger, managing director of macro, trade, fiscal and tax policy, called China’s retaliation against Trump’s tariff threat “massive,” adding that “on a scale of one to 10, it’s an 11.”
Capital Economics’ Neil Shearing went even further than his peers in alerting investors and consumers of the potential risks. In a note to clients, Shearing warned that the tit-for-tat trade war poses the biggest obstacle yet for the spread of globalization, which has been the defining characteristic of the world economy in the post-World War II era.
“We may be witnessing the end of the world as we know it,” Shearing wrote.
Soy Sales Suspended ...
Recession Warning Signal Just Got a Little Louder ...
more, including charts
U.S. farmer on worsening trade dispute: “It’s like a knife in my heart”
Kai Ryssdal and Bennett Purser, Marketplace/ Minnesota Public Radio
Aug 6, 2019
After a turbulent year for American farmers, the trade war has gotten worse.
American farmers were stunned this week when China’s Commerce Ministry halted all imports of American agricultural products. This comes after nearly two years of back and forth tariffs between the two countries and months after extreme weather devastated many U.S. farmlands.
Brian Duncan raises hogs and grows crops on his farm in Polo, Illinois, and serves as vice president of the Illinois Farm Bureau. He said this moment is particularly troubling for American hog farmers, since China is currently facing an outbreak of swine fever.
Duncan spoke to “Marketplace” host Kai Ryssdal about China’s latest retaliatory effort and how farmers are losing hope over the trade dispute. The following is an edited transcript of their conversation.
Kai Ryssdal: I want to do a very quick drive-by on the trade situation just ’cause you’re kind of one of our go-tos on that. It seems you have pegged up a notch here. The president’s talking about how good he’s being to farmers, but in the meantime, there’s a currency war now. What do you make of it?
Brian Duncan: Yeah, I mean you brought up a couple issues. We’ve talked several times about this in the past, and we keep hoping for better news than what we’re getting, right? You know, farmers are receiving another round of tariff aid payments, which we’re grateful for, but it will not come close to making us whole. Especially as we look at this long term, the damage just continues to mound.
Ryssdal: OK, on to other topics. The real reason we want to get you on the phone was a piece I saw I think in Bloomberg the other day about the weather and how hot it is, and how your hogs are getting skinnier because it’s so hot, and that’s pushing prices up. Is that really happening?
Duncan: Well, it may be not quite that simple, but yes, that does happen. Hot weather slows the growth of hogs, even though we keep them in a really nice, environmentally controlled buildings. The heat we can’t do much about, and they don’t gain as fast, and that did happen in July. We saw some marketing’s back up and some marketing slow. But Kai, those pigs come to town eventually.
Ryssdal: I guess they do. Where are you selling them these days? I mean, we used to do big pork business with China, but now we don’t so much. Where’s your market?
Duncan: Oh man, you bring up China, and it’s like a knife in my heart because there is tremendous potential there, Kai. Especially with the massive losses they’ve suffered in their hog herd due to African swine fever. Domestically, we consume a lot. We are moving some product back to Mexico. We are at a 10-year low on product into Japan because we find ourselves at a disadvantage with the countries that join Japan in [Trans-Pacific Partnership]. Well, I guess that’s another knife in my heart, that we’ve talked about in the past.
Ryssdal: And I didn’t even bring that one up. You did it to yourself.
Duncan: Oh, I know. This trade thing, Kai, it’s just like circular bad news, isn’t it?
Duncan: So we’ve again seen with the flare in the Chinese problem, the hog market reacted almost immediately because there are still hopes for us to move some product into the Chinese market. But that’s about all it is right now is hope.
Ryssdal: I have to tell you, I think it’s really interesting...
more, including audio [3:50 min.]
U.S. farmers are exasperated by latest trade war moves: 'Another nail in the coffin'
Adriana Belmonte, Yahoo Finance
August 5, 2019
Trade tensions between the U.S. and China are flaring once again, and American farmers continue to bear the brunt of the implications.
In response to President Trump recently announcing 10% tariffs on $300 billion in Chinese goods, China allowed the yuan to weaken and suspended purchases U.S. agricultural products.
“The Chinese market has a large capacity and the prospect of importing high-quality U.S. agricultural products is bright," state-owned media Xinhua said on Monday. "However, we hope the U.S. will conscientiously implement the consensus reached at the [G-20 summit in Osaka, Japan] between the heads of the two countries, and implement the commitments to create the necessary conditions for cooperation in the agricultural fields between the two countries.”
America farmers were dismayed by the developments.
“This is just another nail in the coffin,” Tyler Stafslien, a North Dakota-based soybean farmer, told Yahoo Finance. “To see this thing only seems to be getting worse rather than better is very concerning, and the American taxpayers may have to foot another round of funding if this keeps up — or we could see a ton of farmers’ loss throughout this nation.”
American Farm Bureau Federation President Zippy Duvall said that the pain extended across the country.
“China’s announcement that it will not buy any agricultural products from the United States is a body blow to thousands of farmers and ranchers who are already struggling to get by,” Duvall stated.
‘Tariff policies have been doing financial harm to farmers’ ...
‘We had developed a market with China’ ...
‘My reaction is fear’ ...
more, including links, chart
Dow closes higher after China blinks
By Anneken Tappe, CNN Business
August 6, 2019
New York (CNN Business)The Dow and the broader US stock market rebounded Tuesday, driven by optimism that currency tensions between the United States and China would ease.
The Dow (INDU) finished up 312 points, or 1.2%, while the S&P 500 (SPX) closed 1.3% higher. The tech-heavy Nasdaq Composite (COMP), which was hit worst in Monday's selloff, closed up 1.4%.
For the S&P and the Nasdaq it is their first positive performance in seven days. The Dow is in the black for the first time in six days.
Markets recovered from a terrible day on Monday, when Chinese government officials said they would take steps to keep its currency from falling too far.
China priced the yuan's reference rate at 6.9683 to the dollar, a hair above the key 7:1 ratio to the US dollar. Although that was the weakest level for the yuan in 11 years, many Wall Street investors feared China would price the yuan below that psychological 7:1 barrier.
The yuan continued to slide Tuesday, but the pace of its decline slowed. One dollar last bought 7.0235 yuan in China, and 7.0530 yuan in the offshore market, where the currency trades more freely.
Stock investors also took comfort after the Chinese central bank announced plans to issue central bank bills worth 30 billion yuan next week. That propped up China's currency, which bounced back slightly against the dollar after the announcement...
China just showed why Trump can't win with tariffs
Jeff Spross, The Week
Aug 5, 2019
China opened up a new front in President Trump's trade war on Monday, sending Wall Street into a tizzy.
Basically, China's central bank adjusted the value of its currency down to its lowest point in over a decade. Investors, fearing President Trump will respond with another tariff escalation, reacted by fleeing stocks for the safety of bonds and Treasuries — causing the S&P 500 and the Nasdaq to fall 3 percent and 3.5 percent, respectively, by the end of the day. And they're likely right. Yet it's also the case that the low value of the renminbi versus the U.S. dollar really is a problem worth addressing.
So is there any way America can combat China's currency machinations without a tariff war and the ensuing market panic? It turns out, there may be.
Right now, as we all know, Trump is relying on tariffs to carry out his trade war. The primary strategy here is to browbeat China into accepting various reforms. But thus far, China hasn't been overly inclined to cooperate, and Trump's tariff threats keep escalating: He's already imposed 25 percent tariffs on $250 billion worth of Chinese exports to the U.S. And last week, he threatened a 10 percent tariff on another $300 billion worth, which would basically make every last dollar of Chinese exports subject to U.S. duties.
The drop in China's currency is a problem for this strategy because it largely neutralizes the pain of Trump's tariffs. The whole idea behind the tariffs is to raise the cost of Chinese exports in the domestic American market, so that Americans buy less of them. But a fall in the value of China's currency lowers the cost of those exports for Americans, thus offsetting the tariffs' effect. Indeed, the People's Bank of China explicitly said the new, lower value target was retaliation for the "unilateralism and trade protectionism measures and the imposition of increased tariffs on China." Trump promptly took to Twitter to rage about "currency manipulation."
The thing is, the Trump administration hasn't come up with any responses other than to impose even more tariffs on Chinese exports to punish drops in the renminbi. Beyond simply repeating the same strategy and hoping for a different outcome, this perpetual upward ratchet of tariffs is precisely what freaks out the markets. Tariffs disrupt specific industries with specific supply chains, invite retaliatory tariffs that do the same, and generally cause a great deal of headaches for investors.
Beyond all that, Trump's tariffs have also failed to rebalance the flow of trade between the U.S. and China — ostensibly the larger goal of the president's economic confrontation with our neighbor to the east. Our trade deficit with China has actually increased since Trump's trade war commenced.
Bottom line: the tariffs have brought a lot of pain for both sides while achieving little. Trump needs an alternative. And several are readily available.
When China's central bank engineers a drop in its currency, what it's doing in concrete terms is buying up financial assets denominated in U.S. dollars. That increases demand for the dollar, hiking its value relative to the renminbi. Bringing the two currencies back into a closer balance requires responding to those purchases in some fashion.
One option is to discourage the buying. For example, the U.S. government could impose a fee or tax on all foreign purchases of U.S. assets. Instead of slapping a tariff on Americans buying Chinese goods and services, we'd essentially slap a tariff on Chinese buyers purchasing U.S. financial instruments. Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.), for example, just put forward a bill that would give the Federal Reserve a new additional mandate to balance America's trade flows with the world within five years. And the tool they give the Fed to do this is a new fee to be imposed on all foreign purchases of U.S. stocks and bonds and so forth — effectively making it more expensive for China to engage in this sort of manipulation.
Now, Wall Street would probably hate this idea. To a certain extent, wealthy investors don't like any government efforts to intervene in trade flows because they just want to be left alone. But it should have minimal effects on the real economy. America is awash in cheap financial capital with or without Chinese investors.
Another option is to get even more surgical:
more, including links