US-China relations reach a new low point – Danske Bank

Danske Bank analysts point out that the already-strained relationship between the US and China hit a new low point this week.

Key Quotes

“A push higher in USD/CNY through the psychological level of 7 was a red flag for US President Donald Trump, who quickly turned to Twitter, naming China a 'currency manipulator'. 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 People's Bank of China (PBoC) was quick to deny the accusations , saying the CNY weakening was a market response to Trump's tariff announcement last week.”

“China found backing from former US Treasury Secretary Lawrence Summers, who in an op-ed in The Washington Post wrote that China did not 'come close to fitting this template [of currency manipulation]' and highlighted that China's 'interventions in the past couple of years have been to prop up its currency rather than to drive it down'. In July, the IMF said the Chinese currency was in 'line with fundamentals'.”

“Trump's big headache in the trade war is the pain inflicted on US farmers, as they are key voters in swing states such as Iowa, Ohio and Wisconsin. Following confirmation from China that it would again stop buying US agricultural products, Trump tweeted that China would not be able to hurt farmers and hinted at more financial support. The President of the American Farm Bureau Federation said that 'we know aid can't last forever' and China's import cut-off was 'a body blow to thousands of farmers and ranchers who are already struggling to get by'.”

“China this week waved the 'rare earths' card again , as China's rare earths association said it would support Chinese counter measures. The statement came after a meeting to discuss the 'guidance' of Chinese President Xi Jinping during a visit to a rare earth plant in May.”