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Daily Archives: August 6th, 2019


The administration’s attempts at beating China is also beating us. MA

By Yawen Chen and David Stanway 1 hr ago

Washington’s decision to ratchet up currency tensions on Monday would also “prevent a global economic and trade recovery,” the People’s Bank of China (PBOC) said in the country’s first official response to the latest U.S. salvo in the two sides’ rapidly escalating trade war.
China “has not used and will not use the exchange rate as a tool to deal with trade disputes,” the PBOC said in a statement on its website.
“China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path,” it said.
The U.S. currency accusation, which followed a sharp slide in the yuan on Monday, has driven an even bigger wedge between the world’s largest economies and crushed any lingering hopes for a quick resolution to their year-long trade war.
The dispute has already spread beyond tariffs to other areas such as technology, and analysts caution tit-for-tat measures could widen in scope and severity, weighing further on business confidence and global economic growth.
The U.S. Treasury Department said on Monday it had determined for the first time since 1994 that China was manipulating its currency, taking their trade dispute beyond tariffs.
The U.S. decision was driven purely by political motive to “vent its anger”, said Global Times, an influential Chinese tabloid published by the Ruling Communist Party’s People’s Daily.
China “no longer expects goodwill from the United States”, Hu Xijin, the newspaper’s editor-in-chief, tweeted on Tuesday.
The U.S. decision to label China a manipulator came less than three weeks after the International Monetary Fund (IMF) said the yuan’s value was in line with China’s economic fundamentals, while the U.S. dollar was overvalued by 6% to 12%.
The U.S law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.
CHINA’S RETALIATION OPTIONS
Chinese state media had warned that Beijing could use its dominant position as a rare earths exporter to the United States as leverage in the trade dispute. The materials are used in everything from military equipment to high-tech consumer electronics.
Shares in some of China’s rare earth-related firms surged on Tuesday amid speculation the sector could be the next front in the trade war.
Beijing could also step up pressure on U.S. companies operating in China, analysts say.
Beijing in June issued a travel advisory warning Chinese tourists about the risks of traveling to the United States, citing concerns about gun violence, robberies and thefts.
Air China said on Tuesday that it was suspending its flights on the Beijing-Honolulu route starting on Aug. 27, following a review of its network.
In a further sign of deteriorating ties, China’s commerce ministry announced overnight that its companies had stopped buying U.S. agricultural products in retaliation against Washington’s latest tariff threat.
“In the end, the United States will eat the fruit of its own labor,” the PBOC said.
FALLING YUAN
Chinese monetary authorities let the yuan fall past the closely watched 7 level on Monday so that markets could finally factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.
The yuan has tumbled as much as 2.7% against the dollar over the past three days to 11-year lows after President Donald Trump’s sudden declaration last week that he will impose 10% tariffs on $300 billion of Chinese imports from Sept. 1.
But it appeared to steady on Tuesday amid signs that China’s central bank may be looking to stem the slide, which has sparked fears of a global currency war.
The offshore yuan fell to a record low of 7.1397 per dollar on Tuesday before clawing back losses after the central bank said it was selling yuan-denominated bills in Hong Kong, a move seen as curtailing short selling of the currency.
Onshore yuan also opened weaker before steadying, but remained below the 7 level. While the central bank set a slightly firmer-than-expected morning benchmark rate, it was still the weakest since May 2008.
The PBOC has insisted the value of its yuan is determined by the market, though it has maintained a firm grip on the currency and supported it when it neared sensitive levels over the past year.
U.S. Treasury Secretary Steven Mnuchin said the U.S. government will engage with the IMF to eliminate unfair competition from Beijing.
A IMF spokeswoman said the organization does not have any immediate comment.
After determining a country is a manipulator, the Treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from U.S. government procurement contracts.
“Naming China a currency manipulator could open the door for U.S. tariffs to eventually increase to more than 25% on Chinese goods,” according to a note from DBS Group Research.
(Reporting by Winni Zhou and David Stanway in SHANGHAI, and Cheng Leng and Yawen Chen in BEIJING, Andrea Shalal in WASHINGTON; Editing by Kim Coghill)

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The opinion below is an example of the administration’s ignorance of world finances. MA

Opinion: China just showed why Trump…

Jeff Spross 5 hrs ago
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: America could buy up Chinese financial assets until the effect of their purchases of our assets are counterbalanced. In short, if China (or anyone else) raises the value of the U.S. dollar relative to their currency by creating demand for our assets, we can raise the value of their currency relative to ours by buying their assets, and neutralize the whole affair. Indeed, the easiest way to do this might be to take the same route Baldwin and Hawley did: Direct the Federal Reserve to bring our trade flows into balance by buying up financial assets denominated in China’s renminbi, or in the currency of any other country our trade flows are out of whack with due to these sorts of interventions.
This would be even less disruptive than charging a fee for foreign purchases of our assets. Investors here and around the world could still buy whatever they wanted without interference; the Fed would simply be participating in the global markets with more strategic intention. As for the real economy, business models and supply chains would simply adjust to changing currency rates, which — in our ostensible global free market for currency exchanges — they already do.
Finally, these aren’t just tools for prosecuting a trade war with China. They are tools for reforming America’s trade flows with the entire world. Estimates suggest the U.S. dollar needs to fall by anywhere from 6 percent to 30 percent to resolve our trade imbalances with the globe. Tariffs are, at best, a horribly indirect method of adjusting currency values, and they do a lot of collateral damage. There are better ways to cut to the heart of the matter.

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Apparently, TOTUS along with his administrative staff keep feeding the “kool-aid” of righteousness to their avid followers. This past week has shown that TOTUS’ staff is trying to tie his tongue. The carefully crafted speech decrying Racism and violence is so out of character as to be comedic n but ni funny. The body language during this contrived speech indicates his discomfort giving a structured speech, he fidgets while holding the podium as to look in control. The reality is that he is projecting his role in all of this onto someone and something else. Within the next few days to a week all of this pseudo concern will be gone as he goes off on another “rally” promoting his dubious accomplishments. His administration has left us almost alone in the wider world with his ill-informed and poorly advised policies. A well-founded policy of assistance to South and Central America would certainly help to stem the flow of migrants fleeing corruption, crime, and death but TOTUS can’t get past his own Racism aided and abetted by his staff and the Senate leadership. Essentially his past speech was no more than a poor attempt to gain some political capital. There are no good policies coming out this administration and the what is being done will hurt us now and in the future, as someone has to correct them. The way forward is the vote and vote again if whoever is elected fails to make the necessary changes required to bring us back to civility and dignity.

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