Dow Drops 925 Intraday on Trump’s Tariffs and Yuan Devaluation
Bonds Hit Record Low Yields in Wild Wall Street Action
The carrot is gone and the sticks are out. After Trump’s now infamous tweet late last week that set markets in the US tumbling, now, the other shoe is dropping as China’s retaliation plans are revealed.
After Trump announced an additional 10% tariff on $300 billion of China goods entering the US, to be levied starting September 1st, China has already implemented a response.
First, the People’s Bank of China, which is the equivalent of the US Fed, allowed the yuan to fall below the peg of 7 to the dollar that has stood as a psychological barrier and is considered an important level to maintain.
Lowering the currency exchange rate has the effect of countering the tariff by increasing the number of yuan generated by dollar denominated exports.
Naturally there are more complex peripheral and ancillary effects that will be debated by economists until the end of time.
The People’s Bank, for what it’s worth, claimed that the drop was “driven and determined” by market forces.
The yuan is now at its lowest point relative to the dollar since 2008.
A second form of retaliation that China appears likely to implement is the reduction of or an outright halt on purchase of US agricultural products.
An increase in the quantities of US agricultural products was one of the concessions negotiated during the recent talks with China during the G-20 summit.
Trump tweeted his displeasure at the lack of follow-through on this promise:
And seemed to imply that this lack of cooperation was possibly the trigger behind his sudden decision to announce the 10% increase in tariffs.
With the US States that comprise the bulk of the large farmers that would be most affected by this issue being the same States that helped Trump win a narrow victory in the Electoral College in 2016, this is a “counterpunch” that will likely not sit well with the current resident of the White House.
These small steps, partly perhaps only threats, partly already in effect, are but a tiny slice of possible retaliation by the Middle Kingdom.
Tariff-Man Joins Circular Firing Squad
Tariff-Man is learning, apparently very slowly, some of the many reasons that Trade Wars are famous for not having any winning countries, but rather, are just a “circular firing squad” which produces only losers.
A common boast throughout the Trump Administrations tenure has been that the stock market is at or near all time highs and that he himself is the sole reason it is. With his trade policies being widely blamed for dramatic market losses that boast may have to be taken out of his toolkit, at least for the foreseeable future.
If today’s responses from China, followed by the stock market reaction, are any indication of where we are headed, it looks to be a bumpy Fall with September and October being statistically dangerous months for the financial markets, in general .
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