Donald Trump has dropped the broadest possible hint that he is ready to dig in for the long term in the Washington’s trade war with China, after the latest escalation in the long-running dispute between the world’s two largest economies.
The US president said he was ready to provide support for US farmers in 2020 should they face pressure from China, as economists at Goldman Sachs said the standoff could continue until after the US presidential election in November 2020.
The deepening dispute has sent stock markets around the world tumbling in recent days as the chances of a resolution wane.
China stepped up its rhetoric on Tuesday, accusing the US of “deliberately destroying international order” through “unilateralism and protectionism” with behaviour that was severely damaging the world economy. Washington had called Beijing a currency manipulator on Monday.
Steven Mnuchin, the US treasury secretary, accused China of devaluing its currency “to gain unfair competitive advantage in international trade”. The US will now ask the International Monetary Fund to “eliminate the unfair competitive advantage created by China’s latest actions”.
Wall Street recorded its biggest fall of 2019 on Monday after days of selling pressure as both sides raised their stakes in the trade dispute. Global markets steadied on Tuesday as investors stepped back to take stock of the rapid escalation. The FTSE 100 closed the day down by about 52 points at 7,172. The Dow Jones Industrial Average was up 0.7% at 25,886 in afternoon trading in New York.
Analysts said the dispute was likely to continue well into 2020, as Trump hits the campaign trail for the presidential election. The Trump administration has provided billions of dollars of support to US farmers, and the president sees it as crucial to keep them on side as the trade war weighs down the US economy.
“While we had previously assumed that president Trump would see making a deal as more advantageous to his 2020 re-election prospects, we are now less confident that this is his view,” David Mericle and Jan Hatzius at Goldman Sachs said.
The move to designate China a currency manipulator fulfilled a Trump 2016 election campaign promise, but it comes at an increasingly tense moment in the standoff with Beijing. The president threatened last week to impose a new 10% tariff on $300bn of Chinese imports to America. The White House already charges tariffs of 25% on $250bn of Chinese goods sold in the US.
The yuan fell below the sensitive seven-to-the-dollar level on Monday for the first time in more than a decade. China’s central bank said the depreciation was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China”.
The People’s Bank of China denied any deliberate manipulation of the currency to help the nation fend off the impact of US tariffs on Tuesday. A weaker currency can help a country’s exports because they become more competitive for overseas buyers.