Wall Street convulsed today with the Dow Jones Industrials losing about 3% of or 800 points at midday, when China devalued its Yuan currency, stopping all U.S. agricultural imports. President Donald Trump thought he could pressure China into a more favorable trade agreement, reducing some of the $500 billion trade deficit, winning concessions on patents and intellectual property. After slapping China with 25% tariffs on some $200 billion in Chinese goods, Trump threatened to hit China with another $300 billion at 10%, unless Beijing plays ball. With U.S. Trade Representative Robert Lighthizer and Chief Economic Adviser Peter Navarro calling the shots, China has finally said enough-is-enough, essentially ending trade talks with the U.S. Trump said he could win a trade war with China but found out otherwise, as China devalued its currency and cut off U.S. agriculture buys..
Trump continued today accusing China of “currency manipulation,” something bound to antagonize Beijing into letting the trade war run its course. Wall Street’s reaction was predictable, looking to take profits, then blame brokerage house’s cyclical profit taking on the trade war. Whatever the reasons for the latest sell-off, the optics look bad for Trump, who’s sold himself on “Mr. Businessman,” someone with superior financial skills. Yet the more his China trade war continues to backfire, it gives voters pause about sending him back for another four years. “It’s called currency manipulation,” Trump tweeted today. “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time,” Trump said, not realizing that it’s also hurting the U.S. economy. Slapping China with $300 billion more in tariffs at 10% sent Wall Street into a nosedive.
Trump wants to point fingers at Federal Reserve Board Chairman Jerome Powell to continue slashing the federal funds rate. Powell has already said the Fed does not raise-or-lower rates based on currency fluctuations. “Central bankers certainly don’t target the level of the dollar,” Powell said earlier in the year, pointing to the U.S. Treasury Department to adjust its dollar policy. China’s Peoples Bank of China denied that it was deliberately manipulating its currency. China’s Central Bank said it would “not engage in competitive devaluation” or “use the exchange rate as a tool to deal with external disturbances such as trade disputes.” Accusing China of currency manipulation undermines current trade talks underway attempting to end the tariffs that have done more harm to U.S. agriculture than anything in China. Devaluing the Yuan actually helps make Chinese goods cheaper.
Wall Street watchers shouldn’t be duped by the headline du jour, when Wall Street’s biggest funds take profits when markets become too frothy. With the Dow at record highs, it was a matter of time before Wall Street found an excuse to sell off. Today, it’s the China Trade War, tomorrow it’s the Fed, another day its geopolitical concerns in the Persian Gulf. Whenever Wall Street needs an excuse to sell-or-buy, there’s always something new in the works. Long-term investors need to avoid hitting the panic button, knowing that Wall Street could turn upward on a dime. When market fundamentals are strong, it doesn’t take long for snap-back trading sessions, after traders buy back shares again. Any positive word about Trump or Chinese President Xi Jinping could rocket markets up again. Trump needs to decide quickly when its time to pivot on China trade policy.
Whether China manipulates it currency or not, Trump should know when its time to fold when it comes to his tariff policy. Boycotting U.S. agricultural products is a big loser for the U.S. economy. There’s no getting around the damage to U.S. GDP from Trump’s current trade war, harming the U.S. more than China. Whatever the U.S. trade deficit with China, it’s obvious U.S. manufacturers prefer manufacturing in China because of cost and reliability. It’s unrealistic to expect U.S. manufacturers to set up shop in the U.S. no matter what the financial advantages. Trump’s kidding himself that companies like Apple Inc. would stop manufacturing in China when it’s made them the world’s richest company. Instead to lambasting China’s trade policies, Trump should look for common ground, but, more importantly, a face-saving way out of the current trade war doing more harm to the U.S. than anyone else. Trump should immediately cancel tariffs on $300 billion in Chinese goods.
Hitting a brick wall with his trade war with China, it’s time for Trump to pivot away from punitive tariffs hurting American businesses more than China. Wall Street doesn’t take much bad news to trigger a sell-off, possibly a market correction of at least 10%. Whatever China’s Central Bank has to benefit its economy, it’s not Trump’s call what to do with Yuan or any other aspect of the Chinese economy. Ending the tariffs would cause Wall Street to surge, improving the U.S. dollar, while, at the same time, boosting a rally in the Dow Jones Industrials, Nasdaq and S&P 500. Watching the Shanghai Composite lose 1.62% and Hong Kong’s Heng Seng lost 3% and Japan’s Nikkei Index lose 1.74% should remind Trump that his pro-tariff trade policy has boomeranged on the U.S. Trump has zero to gain and much to lose continuing the China Trade War policy.
