BEIJING: Tensions between the U.S. and China over trade subsided a bit, giving U.S. investors a reason to wade back into stocks after a big sell-off a day earlier. Still, experts worried that recent actions taken by the two sides presage a prolonged battle over trade that could slow global economic growth.
China stabilized its currency Tuesday, suggesting it might hold off from aggressively letting the yuan weaken as a way to respond to U.S. tariffs on Chinese goods. That came a day after Beijing sent financial markets tumbling by allowing the currency to fall to an 11-year low against the dollar.
A weaker yuan can help neutralize U.S. tariffs on Chinese goods by making them more price-competitive on international markets. The Chinese currency declined to 7.0562 to the dollar before strengthening back to 7.0264.
The U.S. Treasury Department on Monday officially declared that China improperly manipulates the yuan’s value just hours after President Donald Trump accused China of currency manipulation. American officials have long complained that a weak yuan makes China’s export prices unfairly low, hurting foreign competitors and swelling Beijing’s trade surplus.
The designation could open the way to possible new penalties on top of tariff hikes already imposed on Chinese goods in a fight over Beijing’s trade surplus and technology policies.
Things were calmer on Tuesday. After falling 3% Monday, the S&P 500 index rose 1.3% — its first gain in seven days.
The Chinese central bank governor, Yi Gang, had tried to reassure markets, promising in a statement “not to use exchange rates for competitive purposes.”
The central bank is “committed to maintaining the basic stability” of the yuan “at a reasonable and balanced level,” Yi said.
In the U.S., Trump and economic adviser, Larry Kudlow made the case that the U.S. economy is in a better position to withstand a trade war.
“I think China is getting hurt significantly (by the trade dispute), much more than we are,” Kudlow said on financial network CNBC.
But relations remain tense between the two countries and economists and analysts fret about the impact on the economy. Analysts at Capital Economics wrote Tuesday that the recent tit-for-tat “illustrates how rapidly tensions are escalating and suggests that a resolution to the trade conflict is further away than ever.”
The Capital Economics analysts estimate that if the 10% tariffs Trump plans to impose on $300 billion in Chinese goods next month were to eventually rise to 25%, U.S. economic growth would be reduced by 0.4 percentage points. The U.S. economy grew at an annual rate of 2.1% in the April-June quarter.
The U.S. and China are scheduled to resume trade talks in September in Washington.