China faces monetary war in response to Trump

LONDON BEIJING (Reuters) – Chinese financial authorities have let US President Donald Trump criticized by the Chinese financial authorities, saying it was "a major violation," but said the decision would weaken Beijing significantly over time.

The global financial markets, which suffered heavy losses yesterday, received the message with concern, despite the Chinese central bank's badertion that Beijing would not use its currency as a tool in trade disputes. Yesterday, the Chinese yuan reached its lowest level against the US dollar since August 2010, suggesting that Beijing seeks to devalue its currency to counter the tariffs that the United States threaten to impose at the beginning of the month. next.

The yuan fell to 7.03 yuan to the dollar, its lowest level since 2008, a few days after Trump announced a plan to impose 10% tariff on new value Chinese products. $ 300 billion. Investors in international markets consider the barrier of 7 yuan to the dollar as a symbolic threshold, which represents the minimum value of the Chinese currency, and its transit has caused panic in the markets.

Trump accused China of lowering its currency to low levels and said the decline of the yuan could be described as "monetary manipulation", referring to a US law that imposes sanctions on countries that lower their flag in because of unfair competitive advantages.

If Trump threatens to impose new tariffs at the beginning of next month, almost all Chinese imports imported from the US $ 500 billion a year will be subject to tariffs.

China has threatened Friday to respond to tariffs imposed by the United States, which already impose tariffs of $ 110 billion on US products.

International markets are aware that Beijing strictly determines its currency and allows a fluctuation of the dollar against the dollar in a margin of 2% of the reference rate set daily by the Chinese central bank.

"The Chinese central bank no longer sees the need to maintain the yuan exchange rate in the short term," said Ken Chong, currency expert at Mizuho Bank, quoted by Bloomberg, as a sign of retaliation for rising fees .

The Chinese central bank has tried to justify the decline of the yuan by "the influence of unilateral behavior, trade protectionism and rising tariffs on China". He added that the yuan maintained "stability and strength against a basket of currencies, will firmly repress speculation and maintain the stability of the foreign exchange market."

Julian Evans-Pritchard, China economist at the Capital Economics Center, said the central bank "uses the exchange rate almost like a weapon" by linking the value of the currency to the trade war with the United States.

"Assuming their goal is to reduce the impact of the new US tariffs, they are likely to allow a further 10% devaluation of their currency over the next few quarters."

The sharp decline in global equity markets, which has spread to all major Asian, European and US markets, as well as to Arab markets, is causing concern. The markets fear a devastating currency war and it is difficult to stop a series of regular currency devaluations.

Trump addressed yesterday to the US Federal Reserve: "Do you hear?", Referring to China's action as well as to the reduction of the US interest rate by one-quarter percentage, while Trump wanted to reduce it by half a percentage point.