Economy

What is a currency war and could Trump trigger one?

What is a currency war and could Trump trigger one?

In an interview with CNBC television broadcast Friday, Trump threatened to slap all Chinese imported goods with tariffs, risking an escalation in global trade war tactics.

The comments also signalled an undiminished appetite for battle on multiple fronts after a week dominated by coverage of the fallout from his dealings with Russian President Vladimir Putin.

The yuan's fall provides "a significant offset to the loss in export competitiveness for Chinese exporters due to higher U.S. tariffs", Rajiv Biswas, chief Asia economist with IHS Markit, told AFP.

The outbursts were another crosswind for Wall Street, which struggled to find direction and finished the day a hair's breadth in negative territory.

St Louis Federal Reserve Bank's James Bullard said the Fed would remain unaffected by Mr Trump's comments on monetary policy and expressed concerns about rising tariffs.

The Fed has raised interest rates seven times since December 2015 and has penciled in two more rate hikes for this year.

The chance inflation might accelerate has increased after the massive tax cut Mr. Trump championed, which has raised the USA debt and budget deficit.

Fears are growing over a fierce global trade war, after Trump's imposition of hefty import taxes on steel and aluminum from the EU, Canada and Mexico, in addition to levies already on goods from China worth tens of billions of dollars that have sparked retaliatory tariffs.

On Twitter, Trump also accused China and the European Union of manipulating their currencies to promote their exports at the expense of the United States, and criticised the Fed for raising interest rates. The White House has also itemized $200 billion of additional Chinese imports that it said may be subject to tariffs.

Earlier this month, the United States imposed tariffs on US$34 billion of Chinese imports.

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After Beijing offered this spring to buy more natural gas and farm goods from the U.S.to narrow the trade deficit, Treasury Secretary Steven Mnuchin said the trade war was "on hold".

Trump has ordered the Commerce Department to investigate whether auto imports pose a threat to USA national security that would justify tariffs or other trade restrictions.

The U.S. -China spat is the largest and broadest of several trade fights picked by Mr. Trump.

In the CNBC interview, Trump also said he was "not happy" the Fed planned to continue raising benchmark lending rates.

"They're picking the wrong customer, I'll tell you that - you know how intense he is on this issue", he said, adding: "Xi seems to think if he waits out the November elections, Trump will be weakened and therefore will lighten the bite".

"I don't want them to be scared", he told CNBC.

His comments anxious investors already grappling with the impact of a strengthening U.S. dollar on corporate results, and key stock indexes on Wall Street dropped at the open on Friday. The US should be allowed to recapture what was lost due to illegal currency manipulation and bad trade deals.

Trump broke with the long-established executive branch practice of not commenting on the Federal Reserve's decisions, criticising the strong value of the dollar.

But the yuan declined further Friday as the People's Bank of China (PBOC), which manages the currency by setting a daily trading band, weakened the central rate by the widest amount in two years. Analysts suggest Beijing is willing to let the yuan depreciate the longer the trade war rumbles on.