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'Currency Manipulator' China Causes Markets to Plummet - Now What?

08-06-2019
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Carnage occurred in global markets after China's latest shot in the trade war with America. The Dow plummeted 767 points Monday – the biggest drop of the year. Now President Trump is firing back.

China is receiving much of the blame for the market drop after escalating the trade war with the United States. 

The US Treasury Department designated China a currency manipulator giving the administration more tools to fight China's latest action.

China is trying to weaken the impact of new US tariffs by lowering the country's currency rate to less than seven yuan to a dollar. In other words, US dollars are now worth a lot more in China than they were on Sunday. It's the weakest level for the yuan in more than 10 years.

"It's a very potent and a kind of a scary weapon to use in any trade battle," said Associated Press Deputy Markets Manager Seth Sutel.

By devaluing the country's currency, China's central bank is giving American consumers an incentive to keep buying their products.

This follows last week's announcement from the president that an additional 10% tax on billions in Chinese imports would help level the playing field to protect American workers.

"China is taking hundreds and hundreds of billions of dollars out of our country and now we are stopping the theft of American jobs," explained President Trump.

The bottom line is this: Lowering the currency rate means cheaper Chinese goods for consumers. 

Trump claims the change amounts to a currency manipulation he calls "a major violation which will greatly weaken China over time."

It also resulted in significant drops in Monday's financial markets. 

Dan Celia, CEO of Financial Issues Stewardship Ministries, explained that corporate nervousness is a result of uncertainty about the future.

"Maybe not even their particular company, but in so many companies. And there is a concern about that--the negativity that the media is portraying over all of this. They are beating and beating this because they need the negativity that they portray to permeate business and then consumer sentiment." 

For now, American farmers may feel the pinch more than US consumers. China's state owned companies are halting imports of US agricultural products.  President Trump has pledged to provide $16 billion in aid to help US farmers during the trade fight. 

And what impact might the unrest in Hong Kong have on US-China relations going forward? Much depends Beijing's response to demonstrations there. 

Chinese troops are poised near the China-Hong Kong border, and propaganda video released by the People's Liberation Army shows soldiers using their guns during anti-riot training. If China moves against the pro-democracy protestors with a Tiananmen Square-style massacre, trade talks would likely be called off, followed by likely sanctions imposed on China. 

In Sydney, US Secretary of State Mike Pompeo said the United States and Australia are united in opposing Chinese aggression. "We Pacific powers agree it's important to shine sunlight on bad behavior, however and whenever it occurs."

As for now, trade negotiations with China are still scheduled to resume in Washington early next month, about the same time the new tariffs are scheduled to take effect.

Stephen Moore is an economist with the Heritage Foundation and Freedom Works.  He was a guest on Tuesday's afternoon edition of CBN's Newswatch program to talk about the China - US trade war and how President Trump is fighting the good fight even though it appears China doesn't want to get a deal done. Click the player below to watch. 

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