Global Markets Hit After China Devalues Yuan, Stops US Farm Imports

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Global Markets Hit After China Devalues Yuan, Stops US Farm Imports

Stock markets in the United States tumbled more than 2% Monday morning after China’s central bank put the yuan’s daily reference rate below 7 per dollar for the first time in more than a decade. According to Bloomberg, the Chinese government has also directed its state-owned enterprises to halt imports of agricultural items from the United States.

The People’s Bank of China (PBOC), which determines the yuan’s daily exchange rate range, issued a statement blaming the currency’s present weakness on “unilateral and protectionist policies, as well as the prospect of more taxes on Chinese imports.”

China’s action is likely in response to the Trump administration’s threat to impose 10% tariffs on the remaining $300 billion in Chinese imports beginning in September. Hopes that trade discussions were proceeding, if slowly, were crushed on August 1 when the US president complained about Chinese leadership failing to deliver on commitments made during negotiations.

In its statement, the central bank also mentioned that the yuan had gained 20% versus the dollar over the last two decades, perhaps in preparation of claims of unfair currency manipulation. To offset the impact of tariffs, devaluing the yuan makes Chinese exports more affordable and competitive. “The fact that they have now ceased defending 7.00 against the dollar shows that they have all but abandoned aspirations for a trade agreement with the United States,” Capital Economics’ Julian Evans Pritchard told The Guardian. He went on to say that China has “essentially militarized the currency rate.”

This is something that US officials have previously complained about, but in May, the current administration stopped short of publicly naming any nation as a currency manipulator. However, China and eight other nations are on a federal watchlist, and it is unclear how Trump would react to today’s announcement.

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Global markets from Shanghai to Stockholm all plummeted in response to the new trade war escalation and the uncertainty it entails.

The Shanghai Composite Index and the Shenzhen Composite Index in China both finished 1.62% and 1.47% down, respectively. The Nikkei 225 Index in Japan fell 1.74% on the day. The Hong Kong Hang Seng Index fell over 3% in a region rocked by social turmoil.

In heavy trade at 11:00 a.m. ET, the DJIA had down 2.19%, the S&P500 had fallen 2.2%, and the tech-rich Nasdaq had plummeted 2.9%.

Investors flocked to safe havens, forcing the Japanese yen to surge and gold prices to reach their highest level in six years. Ten-year US Treasury rates plummeted to roughly 1.76% following Trump’s tweet on Thursday, the lowest since November 2016.

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