How The US-China Trade War Turned Into A Currency War


The trade war took a dangerous turn and
is now morphing into what many are calling a currency war. It’s all out economic warfare between
the two biggest economies in the world. U.S. and China. Two key developments took us here. The Chinese currency weakened passed
a significant level that investors were thinking maybe China would
defend—an indication perhaps that China was stepping up its fight
in the trade war. The U.S., in response, designated China a
currency manipulator, something that the U.S. Treasury hasn’t done since 1994. And while mostly symbolic, was seen as
a big aggressive move to call China out and just escalate this
trade tension even farther. What makes it difficult is that when
you have a currency war, everybody wants a weaker currency. Weaker currencies help your exports stay
more competitive on a world stage. But not everybody can
have a weaker currency. So in response to the U.S. and China’s moves on currencies, we
saw other central banks and economies take action like India, Thailand and
New Zealand, all surprising their markets through monetary policy and
all weakening their currencies. If everybody races to the bottom, it
can be very disruptive to markets and to the global economy. When the Treasury formally calls out
another country for being a currency manipulator. Not much happens. It’s largely symbolic. It’s a badge of dishonor. It’s considered embarrassing and puts that other
country at the top of the G-20 agenda for discussing what
it’s doing with its currency. In practice, not
much explicitly happens. The Treasury engages the International
Monetary Fund and China in negotiations and discussions about what
the currency has actually been doing and how they’re
going to fix it. However, this administration doesn’t necessarily
play by the same rulebook. So many are worried that by
designating China officially a currency manipulator, President Trump could use that
politically and on the world stage to just impose more tariffs,
other sanctions and other economic punishments. Now, that’s not necessarily in
the Treasury rulebook for how this goes. But we’ve seen President
Trump break the rules. Mostly everybody wants
a weaker currency. There are benefits to having
your currency be weak. Number one, it makes
your exports more competitive. If you’re Japan and selling Hondas and
Toyotas to Americans, it gives them an edge over companies
like GM and Ford. It also makes
earnings more competitive. S&P 500 earnings have gotten hit this
year because the dollar’s been so strong. Anybody that does business overseas, from
Apple to Procter and Gamble to the automakers to John Deere, which
President Trump also called out during a tweet, their earnings and their revenues
get cut by that strength of the dollar. They sell overseas. It’s less competitive. They bring the money back home. It’s worth less. We’ve learned this lesson
so many times. And that is currency wars and
tensions fueled by countries trying to weaken their currencies can have a
very destabilizing effect on growth and on stock markets. It happened in 2015. China made a surprise decision to let
its currency weak and devalue the yuan. Guess what? That led the S&P 500 into a
correction, 10 percent off the highs. That’s why as soon as we saw
China let its currency weakened, it sparked all sorts of concerns, not just about
the escalation of the trade fight, but about what’s really happening
beneath the surface in China. When countries devalue their currencies, it
leads investors to wonder, is their economy suffering
worse than expected? Are they going to have to deal
with capital flight, a scary prospect where people take money out
of their economy. We’re not talking about in a small
emerging market like Turkey, where we had these concerns. We’re talking about China, one of the
biggest markets in the world and the second biggest economy in the world. When you have other countries stepping in,
then to fight to protect their economies and their currencies, it’s this notion
of a race to the bottom on interest rates and on currencies. And that is what spooked markets. The fact that it’s going to be unpredictable,
it’s going to be a source of tension and ultimately it’s going to
kill growth because tensions put up walls between countries. Trade slows down. Tensions emerge. And that’s sort of been the theme of
what we’ve been seeing on trade and now currencies in 20 19.

100 thoughts on “How The US-China Trade War Turned Into A Currency War

  1. We want to buy your high-tech products to make up for the trade surplus. Do you sell them? We trade dollars at the expense of the environment, and the U.S. government just prints dollars.

  2. There's a difference between something being in the rulebook in other words being precedent or tradition and something actually being a rule

  3. I had to stop watching as she attached Trump. It's good to put the right info but also attaching the President at the same time is bad journalism. The bias needs to stop what happened to just facts

  4. What? No mention that the U.S. has three criteria for identifying a currency manipulator and that China only meets one of these criteria (a trade surplus with the U.S.). No mention that the IMF and the rest of the international community claims that China is not manipulating their currency? No mention that the U.S. dollar is presently artificially inflated in value so of course other currencies would lower in value relative to it unless they manipulated their currencies in order to peg them to the dollar? (The yuan is pegged to the Euro, not the dollar). Nice reporting, almost missed all the important points of discussion.

  5. The truth is if China doesn't manipulate the currency, Chinese Yuan would drop even more due to more and more manufacturers move out of China… that is definitely not something the US wants to see…

  6. Who started this trade war in the first place? THE USA! The world economy is only better when the US has sensible and not bullying policies.

  7. "When you can't beat a nation mentally, try and start a war with them." The US and it's depraved people are just waiting for God's wrath.

  8. Don't be misleading. China does not devalue its currency, it just stop popping it up and let the market decides how much the yuan is worth. The IMF already said that much. Trump on the other hand wants to manipulate the dollar lower. Who is the currency manipulator?

  9. USA and CHINA are both SHADY countries…
    They will do everything in there power to destabilise other countries for there own gains…

  10. In the meantime, Federal Reserve has refused Trump's requests for reducing the interest rate to devalue US dollar for several times and Trump condemned FRS for it on Twitter. But I didn't see any US citizen call the chair of FRS a traitor.

  11. Motive behind weakening currency is to make currency as reserve currency for emerging economies
    It is called economic rule manipulation

  12. Not necessarily. A weaker US dollar would mean that US residents cant purchase as many imported products, because these will become more expensive. This will however depend on the elasticity of imports amongst US consumers and producers. Infact a weaker US dollar might actually help to reduce the defecit on the BOP that the US has with other countries, China being a prime example. The purchasing power of the US dollar on a domestic level is ofcourse greatly dependent on inflation. A weaker dollar may cause an increase in inflation due to higher Aggregate demand (as a result of cheaper exports), but this is unlikely to have a huge impact on US consumer spending power. The Fed will use contractionary monetary and potentially fiscal policy to make sure this doesnt happen.

  13. Us rises tariffs to 10% meanwhile by coincidence that RMB devaluated 10%

  14. Democrat liberal socialist push trade war woes and recession talk just doubling most economist portfolio's to include mine. Thanks for the new sailboat.

  15. if you devalue your currency your exports become cheaper ….. but on the other hand your imports get more expensive …. countries like china can benefit from it because they export more then they import ….. but countries like USA who are a big importer docent benefits from devaluing their currency

  16. I ll tell you why this ain't going to produce any positive outcome , America is not asking for fairness and they never actually cares about playing any game fairly … America is simply telling China : We will not allow you to raise to the top spot we want to bring you down by any necessary mean . How do you expect China to respond to that other than fighting tooth and nail ? America is asking the impossible and expecting conplaiance !

  17. We already knew they we’re a currency manipulators for a long time.
    But now it’s official.
    Don’t just try to turn everything into a anti-Trump message.

  18. It just like a market. If one store lower its prices on all products, other stores either follow or lose Competitiveness.
    The question is who is cheating while doing business, and it’s not a healthy economy.

  19. Federal reserve printing dollars out of thin air, and Trump is angry that china is manipulating currency.

  20. World stage: everybody wants a weaker currency but not everybody can have weaker currency
    Argentina: challenge accepted

  21. Ah humans… we created a “god” made of paper. We religiously follow these guidelines. Yet, something from the universe can take us all out in a heartbeat. SMH… asteroid.. do your thing.

  22. cnbc tried to mislead you america and the other liberal media outlets didn't do their due diligence and investigate a report before they re-reported a fraudulent story. this appears to be intended to mislead liberals and conservatives alike. their article intentionally misrepresents the white house and the nwc

    they reported that the national weather service had to correct the president

    https://www.cnbc.com/2019/09/01/national-weather-service-corrects-trump-on-hurricane-dorian.html

    they lied

    here is the presidents tweet

    https://twitter.com/realDonaldTrump/status/1168174613827899393

    trumps tweet is time stamped as being 9:51 am

    here is the national weather service tweet

    https://twitter.com/NWSBirmingham/status/1168179647667814400

    the nwc tweet was 8:11 am. 1 hour and 40 minutes before, so you see no possible way that it could have been intended as a correction.. the article is bogus, the rest of the liberal articles are referring to that one.

    so you have to ask yourself did these all these media outlets forget to fact check the article before they reported on it? or did they intentionally jump on the band wagon knowing that it was a lie. ?

    you decide.

  23. America doesnt have gold to back a single dollar bill meanwhile Germany doesnt let Romania be nr 1 in monetary power with all the gold the world never has

  24. Why First World countries busy with trade wars? China vs. USA and Japan vs. Korea. Developing countries can't relate.

  25. China will lose in trade, economic currency war with China and will start military confrontation. …
    China will lost 3/4 of its population when war breakdown.

  26. Intellectually weak analyses that doesn’t even call out the most important development: that the PRC current account has gone negative in the 1H of 2019, first time in 17 years.

  27. We threatened tariffs on Canada, European Union, China… friend and foe alike. What do we expect want them to do? Bow down? It's almost like the administration is run by incompetent children. CNBC should give the background as to why there was retaliation to begin with and explain how the fortune 500 companies tried to get Trump to stop his nonsense.

  28. If you weaken your currency your exports are cheaper? No that's not how it works. That would drive up inflation and made everything cost more so in the end you would just he paying more money with a weaker currency.

  29. China deindustrialized the US, now its time for the US to do the same to China. The people whom they call american elite screwed the American people for bowing their heads against the communist China. the result of what they did is the new military weapons made by China to establish themselves as the new super power.

  30. Why attack a president that only looking after this country's interest? For decades Democrat and Republican presidents have let China roll over us and steal our intellectual property and technology cheapened its labor so much that American companies can't compete in manufacturing. And this idiot so call "journalist " says that Trump doesn't play by the rules, TAKE A HIKE SWEETHEART!!

  31. I just dont understand how it could work in the global economy. at the end of the day you have to import and then you will spend more

  32. It's funny. The more the red chinese try to muscle and cheat America, the less their Renmimbi ends up being worth. It's extra funny that as the rest of the world slides into recession or worse, all the investors are shoving their money into American markets. That not only drives markets up but the value of U.S. currency as well and may well induce the President to squeeze the fed for lower rates to reduce demand for greenbacks and push our currency back down, which will leave the chinese with the unenviable option of competing against us or pushing the Renmimbi even lower.

  33. 99% of the world will not see the next monetary shift into cryptocurrencies! If you do not believe in it then that is on you in the future for not educating yourself and doing your own research on cryptos and the technologies behind each coin/token. Continue to ignore it but when the shyt hits the fan in 6 years…good luck! I will not be one of the 99% with blood on my hands to survive a terrible phase that is known as "The Great Recession" decades from now. The next decade will drastically change and those not involved will be hit hardest and it will be worldwide! Do not try to seek the Citadel cities without proof of crypto too for they will not let you enter! You will see a 100k #btc very soon! Trump somehow gets reelected for a second term. The nation gets more divisive and its all downhill after the dollar collapses once BTC reaches past 1 million….#2021 #2023 #2025 #2028

  34. It’s stupid to weaken ones currency I know one one country which never did that and still is exporting more than everyone. Germany

  35. 鴿子不知為何聯合國打擊罪犯團,是有分別,而律法也有分別,,,??,对了,公平天秤咩好久不見了,也許是对FOXXssS有意見不合,而喜歡上仿铁騎假日陰帝天,,,唄,而偽鈔消費券加乱倫族罪犯无理治,而擾乱獅邪会及公平交易商貿律及海商法及假權以利益互取,所以一切以獅貿主及獅主同後律众事,以扣翅分數拔羽毛而降階为太空中心,而以北伯众為主之太空總署領主導,,,SO。
    对了,他龟毛会更累,,,SO,喜不喜歡,,,假仿铁骑偽钞乱倫族使北太空領主而累,也使龟毛领导众使太空中心軽鬆減压力,,,SO。

  36. Americans needs to stop bullying and create problems to gain their selfishness corruption wealthy lifestyles above worldwide national…..China was allowed to invasions activists in America by garbage greedy idiots Americans….the Chinese impossible to steal nothing from America without assistants to know how…….

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