US President Donald Trump’s administration had earlier confirmed that they would slap a 10% tariff on remaining Chinese goods left out in the September hike, prompting Beijing to suspend agricultural product purchases from the Untied States.
Yesterday’s move by the US Treasury Department to designate China a ‘currency manipulator’ was seen by analysts as a further escalation of the situation.
The announcement by the Treasury Department came at the end of an eventful day which saw Beijing allowing its currency to dip to a 11-year-low against the Dollar.
The move caused the Dow Jones to slip almost 1000 points and sparked alarm among economists who say that the move could trigger a global recession.
China defended the move saying that the fluctuations of the yuan exchange rate were ‘normal.’
China Daily reported that The People’s Bank of China, the central bank, had released a statement saying the weakening of the currency is due to factors such as unilateralist and protectionist measures of the US as well as Washington’s threat to impose additional tariffs on Chinese goods.
In a statement released on Monday evening, Yi Gang, PBOC governor, said he is “confident in the renminbi continuing to be a strong currency”.
Yi said that China will adhere to the principle of letting the market decide the yuan’s exchange rate.
“China… will not make a competitive devaluation of the yuan, nor will it use exchange rates as a means for competition or coping with trade disputes,” he added.
The move sparked stock market dips at home with China’s Shenzhen Composite dropping sharply by more than 2 per cent while Hong Kong’s Hang Seng also shed over 2 per cent.
The South Korean won continued to sink to new lows against the US dollar Tuesday, amid escalating trade tensions between the world’s two largest economies that now appear to be set to include a currency war, the Korea Herald reported Tuesday.
“The trade tensions between the US and China are entering the phase of a currency war with the yuan breaching the 7 per dollar level and the US designating China as a currency manipulator,” Jeon Seung-ji, an analyst at Samsung Futures, said.
“The won-dollar rate is expected to test the 1,220 won level as the conflict between the two countries will likely prompt market fears for some time, forcing investors to avoid risk assets,” Jeon added.
The Bank of Korea said it has called for an emergency meeting of its top officials, including Gov. Lee Ju-yeol, to discuss the possible fallout of the latest developments.
In Singapore, the Straits Times Index opened down 1.5 per cent on Tuesday while Shanghai fell 2.6 per cent by midday.
The Japanese yen rose to a seven-month high against the dollar before slipping slightly while Japan’s 10-year yield fell to a three-year low.