TRADE WAR INTENSIFIES


China’s decision to stop the purchase of U.S. agricultural products could be a devastating blow to an already struggling sector in the U.S. The move may dent U.S. gross domestic product and hurt companies like Deere in an already tough year for crops and commodity prices. 


Goldman Sachs said there is no chance of a trade deal between the world’s two largest economies before the U.S. presidential election next year. In its research note, investment bank noted, “News since President Trump’s tariff announcement last Thursday indicates that U.S. and Chinese policy-makers are taking a harder line, and we no longer expect a trade deal before the 2020 election.” 

But U.S. President Donald Trump dismissed fears of a long-lasting trade war with Chinadespite a stern message from Beijing that the decision to label it as a currency manipulator would have severe consequences for the global financial order. Trump tweeted that “massive amounts of money from China and other parts of the world” were pouring into the U.S. economy. In the face of China’s retaliation, he pledged to stand with American farmers, his key political constituency. 

China’s yuan weakened after the central bank set its daily currency reference rate closer to 7 a dollar. “Investors may be concerned that the fixing may break 7 in the future, which will be seen as a sign that room for depreciation remains large,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. 

Bloomberg reported that a weak yuan is a strong weapon for China. The report dismisses the president’s apparent assumption that Chinese companies cut the prices they charge by an amount equal to the tariffs to keep their customers unaffected. 

While the spot value of the yuan has fallen this week, China’s state banks have moved to support the currency in the onshore yuan’s forwards market. Reuters said banks had conducted significant amounts of buy-sell swaps in the onshore market on Tuesday. 

Following this week’s surprise move from China’s central bank, traders have started keeping a tab on the reference rate set by People’s Bank of China’s at 9 pm ET every night. Keith Lerner, chief market strategist at SunTrust Private Wealth said, “That’s going to drive sentiment from day to day along with headlines coming out of China. People are going to, no pun intended, be fixating on that combination every day.”

In the ongoing trade war between the U.S. and China, Vietnam has emerged as the winner. The country is benefiting so much from the impasse that it’s at a risk of being hit with punitive American duties. Its leaders are trying to convince the Trump administration that they’re fair traders as they seek to protect exports to the U.S., which equal American farm groups reacted 20% of gross domestic product last year and almost 26% in the first half of 2019.

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