U.S. labels China a ‘currency manipulator’ as stocks fall and trade war worsens
WASHINGTON — The U.S.-China trade war took a dangerous turn for the worse Monday as Beijing allowed its currency to weaken and said it was halting new American farm purchases, sending U.S. stocks in a tailspin and heightening risks of a global economic downturn.
The Chinese actions were seen as retaliation after Trump last Thursday abruptly announced plans to impose new 10% tariffs next month on an additional $300 billion of Chinese goods, despite having declared a truce in late June.
Then later in the afternoon, the U.S. Treasury Department formally labeled China a “currency manipulator,” reversing years of avoiding the designation so as not to inflame Beijing.
The renewed escalation dimmed hopes for a near-term trade deal and now threatens to bring another potent weapon into the confrontation: national currencies.
Beijing on Monday allowed its yuan to fall in value to its lowest level against the dollar in more than a decade. A weaker yuan would make Chinese exports cheaper for U.S. buyers, potentially blunting the effects of higher U.S. tariffs.
Trump immediately accused China of being a “currency manipulator” and his Treasury Department officially made that determination in the evening. Analysts said, however, there was no evidence that China had “weaponized” its currency, as some alleged. Instead, experts said the Chinese currency had weakened due to market forces partly as a result of Trump’s new tariff threats and China’s economic slowdown.
Nonetheless, Trump blasted China during the day and suggested that the Federal Reserve, which last week cut interest rates partly because of trade worries, should intervene to counter the Chinese move — raising the specter of a currency war.
The increased tensions and fears of more tit-for-tat measures spooked financial markets.
The Dow Jones industrial average fell as much as 961 points Monday afternoon before ending the day down 767 points. That was still the worst drubbing this year, the sixth largest point drop in Dow history, and the fourth straight session of losses that now total nearly 1,500 points.
“I’m worried because now the risk of further escalation seems greater,” said David Dollar, a senior fellow at the Brookings Institution and formerly the World Bank’s country director for China. “The Chinese seem committed to retaliating to each move, but then you might have the U.S. raise the latest round of tariffs to 25% or maybe increase some beyond 25%.”
Dollar added: “I think this escalation is very bad for the world economy.”