U.S. Stock Market Rebounds, China Blinks After Trump Administration Labels Nation A ‘Currency Manipulator’
On Monday, Wall Street saw its worst trading day of the year as Donald Trump escalated his trade war with China. However, by Tuesday, stocks had rebounded after China took steps to ease tensions with the United States after the U.S. Treasury labeled the country a currency manipulator.
According to CNN, China’s central bank set the yuan’s reference point just above the 7:1 ratio to the U.S. dollar. That puts the yuan at the weakest level, in comparison to the U.S. dollar, that it has been in over a decade. The Chinese central bank also announced that next week it plans to issue bank bills worth 30 yuan.
The moves helped the stock market bounce back in early trading, with the DOW 200 points (.8% higher), and the S&P was up 0.9%. Nasdaq, which saw the biggest drop on Monday, was back up 1.3% on Tuesday.
The U.S. Treasury had raised tensions between the two nations on Monday after it called out the country as a manipulator, the first time this has taken place since 1994. The Chinese central bank had let the yuan depreciate, according to The Wall Street Journal, leading to fears that a trade war could harm both countries’ economies.
“Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars!” the president wrote in a tweet.
“China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”
Burdened by rising debt, falling commodity prices and the fallout of the Trump administration’s trade wars, hundreds of farmers around the country are fighting to stay afloat. https://t.co/pCU0nMIh2d
— The Washington Post (@washingtonpost) August 6, 2019
Experts expected China to retaliate after Trump announced another round of tariffs against the country, impacting $300 billion Chinese goods, which are set to take effect on September 1.
China denied that the yuan’s depreciation was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.”
Trump has frequently criticized the country for keeping the yuan artificially low to make its goods cheaper, though supporters say that the country needs to allow its currency to respond to the markets.
While the stock market dipped on Monday as fears of a trade war escalated, China made moves to ease those fears first, encouraging renewed trading on Tuesday. As a result, companies who share a larger burden of the impact of a trade war with China, like Apple and Ford, both traded higher as the day started.
