China Halts All US Ag Imports, Trump Accuses China of Currency Manipulation

-edited

It didn't take long for China to retaliate against Trump's trade war escalation. It did so by halting all US ag imports.

Last Week the self-proclaimed "Tariff Man" raised tariffs on all remaining goods in China.

Bond Inversions Strengthened on the news.

Tariff Man Returns

China Quickly Responds

In response, China Halts U.S. Agricultural Purchases.

China’s state-run agricultural firms have now stopped buying American farm goods, and are waiting to see how talks progress, the people said, declining to be identified as they’re not authorized to speak to the media. Meanwhile, the private crushers haven’t received notices from the government on any policy change since the U.S. escalated tensions last Thursday, people said.

“The leverage that China has is its large agricultural purchases,” Darin Friedrichs, a senior analyst at INTL FCStone’s Asia commodities division, said in an interview on Bloomberg TV. “This does affect U.S. farmers and the rural U.S. voting base that’s normally in support of Donald Trump. If they hit back before the election, that’s the obvious way to retaliate.”

China Soybean Imports Plunge to 2004 Level

Yuan Slides

Not only did China halt agriculture imports from the US, it also let the yuan slide.

Bloomberg reports China Takes On Trump by Weakening Yuan, Halting Crop Imports

China responded to President Donald Trump’s tariff threat with another escalation of the trade war on Monday, letting the yuan tumble to the weakest level in more than a decade and asking state-owned companies to suspend imports of U.S. agricultural products.

Editorials in state-run newspapers suggested Xi will reject any deal that either retains punitive tariffs or forces China to make concessions on issues like state-run enterprises that could weaken the party’s grip on power.

The onshore yuan weakened 1.4% to 7.0391 a dollar, falling sharply on Monday morning after the PBOC set its daily reference rate at a weaker level than 6.9 for the first time since December.

By linking today’s devaluation with the renewed tariff threat, the PBOC “has effectively weaponized the exchange rate,” said Julian Evans-Pritchard at Capital Economics in Singapore. “The fact that they have now stopped defending 7 against the dollar suggests that they have all but abandoned hopes for a trade deal.”

Allowing the yuan to weaken is not without risk for China. A mid-2015 devaluation spurred capital outflows and destabilized global markets, though tighter capital controls this time around should help prevent another exodus.

OK None At All

Trade War Becomes Currency War

Trump Accuses China of Currency Manipulation

Note the Major Irony

Interest rate cuts to weaken the dollar and letting support level pegs drop are both signs of currency manipulation.

Negative interest rates in Europe and Japan are more of the same. Currency wars started long ago, and The Bernanke Fed slashing rates to zero in 2008 were part of it.

Did you catch the major irony?

Trump says the currency manipulation will "greatly weaken China over time", yet he wants the US to do the same, constantly moaning about a dollar that is too strong and interest rates too high.

Not Easy to Win

Hello President Trump!

Are you still sticking to your nonsensical statement "Trade wars are good and easy to win"?

Expect Recession

A Manufacturing Recession was Already Underway.

As the Bond Market Screams for More Rate Cuts, Trump Policies Ensure They Come

Yields are lower still today, and they have fallen every day since the FOMC announcement.

A global recession will soon follow, including the US

Mike "Mish" Shedlock

Comments (56)
No. 1-16
Sechel
Sechel

The entire trade war is stupid and will wind up hurting both countries. Trump's policies are already a drag on U.S. growth and the reason The Fed reduced rates. Trump has one legitimate trade issue with regards to China, intellectual property theft but instead of focusing on that issue Trump wants managed trade between the U.S. and China.

Tater-Man
Tater-Man

Coming up on lunch time in the USA, and SHOCKER! Mish has yet another post complaining about Trump.

Maybe the unrest in Hong Kong has at least something to do with Yuan weakening?

Or maybe the problem is global - central planning is failing everywhere. What is the big difference between the yellow vests in France and the protesters in Hong Kong? Other than China's government has shown restraint (so far), while Macron is using violence against his own citizens?

But Mish wants to blame Trump and only blame Trump. There can't possibly any other explanation for anything. Maybe Trump is part of the problem, but its naive to suggest that explains the whole picture.

Its Monday, and that's Trumps fault too! :) Or maybe Putin paid Facebook $10K to trick social media weenies into thinking its Monday, and Robert Mueller was just Putin's puppet for doing so! Yeah, that's the ticket

Its Trump Derangement Syndrome

Matt3
Matt3

So China will stop importing food. Good luck with that strategy! I think food (agricultural product) is pretty much a commodity with a global market. If they don't buy food from the US, they will need to buy it somewhere or starve! Kind of like boycotting oil. Unless you can force the rest of the world to go along with it, the impact is minimal.

Tony Bennett
Tony Bennett

"Allowing the yuan to weaken is not without risk for China. A mid-2015 devaluation spurred capital outflows and destabilized global markets, though tighter capital controls this time around should help prevent another exodus."

...

We'll see. China had to burn thru foreign reserves last time ($ 4trillion ---> $3.1 trillion) to defend. If things get SERIOUS will Mr Market call (bluff)?

Though, once again proving the adage of being too early is still wrong ... I believe Kyle Bass's position that yuan is one step above toilet paper (hey, gotta like the pretty pictures). Since the recession China's debt - much of it non productive paper-overing of zombies/RE - has soared from $8 trillion to $40 trillion. At SOME point there will be MAJOR printing of yuan to cover.

Brother
Brother

This is hardly a war. Many headlines read like the tariffs(not in effect) are causing mass economic damage. This is just not the case.

AWC
AWC

Relax folks. Mr. Trump and Mr. Xi know more about market economics than all the worlds markets and market players. Just have faith, and grant them full consensus and they will save you all from yourselves ;-)

Mish
Mish

Editor

"But Mish wants to blame Trump and only blame Trump"

Stop being an ass.

I have blamed the Fed, Congress, and central banks in general so stop being an ass. The fact of the matter is: Tump policies have made matters worse.

Nowhere did I say Trump "caused" them.

I am sick of fools who cannot accept ANY criticism of Trump. '

Jackula
Jackula

This blog is focussed on economic policy not the cult of personality. Mish is fostering a discussion of our country's and the world's economic policies. For example if I were to Trump bash I could talk about his policy of scapegoating the brown people from the south for our country's problems not to mention all of the exaggerated media coverage(misrepresentation) of the issue at our southern border. I could discuss how when Governor Pete Wilson played the race card here in California he managed to completely decimate the long term prospects of the CA Republican party. For the record I am absolutely not a Clinton fan

Jojo
Jojo

Wait to China decides not to keep honoring Trump's sanctions against buying Iranian oil. If they start buying, oil prices will plummet. I hope they do it it. Trump needs to get cut down a few notches.

Aaaal
Aaaal

Living proof that when your uncontrolled mouth(& twitter thumbs) joins forces with an arrogant yet wholly ignorant brain one tends to paint oneself into inextricable corners. He & many of his minions may believe that he is playing 4D chess but this game is Xiangqi.

Sleemo
Sleemo

Cue taxpayer-funded bailout of US farmers (read: Trump base) in 3 ... 2 ... 1 ...

William Janes
William Janes

I think that I will look at commodity futures this week. Haven't purchased any in a long while, but this has the look of the 1970s. Ag commodities don't increase by snapping your fingers, and surplus forecasts can disappear over night in that world. Keep me informed on the always popular Apocalypse forecasts.

Sechel
Sechel

Agriculture mainly comes from Red States. This is expected.

harrykoala
harrykoala

I'm not a Trump supporter, but I do support his stance on China as do I think most sensible people. It's just his piss-poor way of negotiating that makes me really wonder if he's ever really had to negotiate anything before. It doesn't help either that he has a Jim Jones like personality cult of supporters. For everything that goes right, it must be Trump and for everything that goes wrong, it's all part of his grand plan and we just need to suffer and be patient for the reward....sounds like people lost Jesus and found Trump instead.

Webej
Webej

With all the chatter, I have yet to read anybody who argues that the yuan would increase in price if left to market forces. This is what Trump & the Treasury are alleging, literally.

All central bank actions are currency manipulation one way or the other. The term is nonsensical in a world of floating currencies.

Ted R
Ted R

Trade wars are a great way to start a depression. I hope the President knows what he is doing because the U.S. economy will sink or swim based on how this deal works out.