Trade war may escalate to currency war, hurting Japan

Trade war may escalate to currency war, hurting Japan

But analysts remain optimistic of domestic demand as total steel output is still running at a high level and as anti-pollution curbs are expected to be relaxed in August.

Chinese tariffs on USA soybeans have slashed exports of the most valuable US crop and prompted the Trump administration to compensate farmers for two years with as much as $28 billion.

China has raised the prospect of limiting rare earth exports to the United States in retaliation for USA tariffs, another batch of which are set up come into force from September on around $300 billion of Chinese goods.

Imports jumped nearly 8% year-on-year to 8.64 million mt and were almost 33% higher than the 6.51 million mt imported a month earlier, data from China's General Administration of Customs (GACC) showed.

On Wall Street, the Dow Jones Industrial Average fell 217.94 points, or 0.83%, to 26,160.25, the S&P 500 lost 31.72 points, or 1.08%, to 2,906.37 and the Nasdaq Composite dropped 111.89 points, or 1.39%, to 7,927.27.

The surplus with the United States was little changed but stood at $28 billion, a level that might fuel American pressure for Chinese concessions in trade talks.

Some traders have become anxious that the US administration of President Donald Trump could intervene in the foreign exchange market to stem the appreciation of the dollar against the yuan in a bid to counter China's alleged currency manipulation. That has been a major complaint of President Donald Trump.

"This hopefully can offset some of the downside risks from the U.S. China bilateral trade".

"Exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi should be overshadowed by further USA tariffs and broader external weakness", said Julian Evans-Pritchard of Capital Economics.

"The American economy is very strong".

The dispute between the world's largest economies is spreading beyond tariffs on goods to other areas such technology and in recent days currency policy. Shortly after, the US Treasury Department issued an official statement designating China a "currency manipulator ', although China does not fulfil the three criteria the Treasury normally uses to determine whether a country is a 'currency manipulator".

The prospect of snap elections in Italy brought down shares across Europe, while London's FTSE 100 index and the pound sank after Britain reported its economy shrank in the second quarter, the first contraction in seven years.

Capital Economics predicts the yuan could be allowed to depreciate to 7.5 against the U.S. dollar next year. Australia led the way as Beijing purchased 18.7% more from the Land Down Under.

Ishikawa said there is little chance for Washington to attempt to control the foreign exchange rate as it has urged Beijing to stop doing so, but he added, "I can't say 'absolutely not.' Trump may do whatever he can to challenge China".

Trade weakness has added to pressure on Xi's government to shore up economic growth and avoid politically risky job losses.

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