An already bad week got worse for President Trump today when China launched two new attacks on the American economy. The day began with the news that the Chinese government had devalued its currency to less than seven yuan to the dollar. This news was followed several hours later by a statement from the Chinese Ministry of Commerce announcing that China was suspending purchases of American agricultural products.
The Wall Street Journal reported that the Chinese central bank reported that the decision to weaken the yuan was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.” Last week, President Trump threatened to impose 10% tariffs on $300 billion worth of goods imported from China effective September 1.
The Ministry of Commerce also blamed Trump’s new tariff threat. “This is a serious violation of the meeting between the heads of state of China and the United States,“ said China’s Minister of Commerce in a statement.
News of the renewed trade war sent stocks tumbling. The Dow Jones Industrial Average closed down more than 700 points. At one point, the Dow lost 961 points before recovering some lost ground.
In response, the US announced that it would designate China as a currency manipulator. The move requires the Treasury Department to demand special talks aimed at bringing China’s currency to market value.
China’s harsh response to Trump’s move leaves the president between a rock and a hard place. If the president sticks to his guns, the stepped-up trade war is likely to push the country into a recession before the election. On the other hand, if he backs down Mr. Trump will lose face and possibly fracture his support base, which values his reputation as a fighter. In either case, the disappointing results from the trade war seem likely to dim the president’s re-election prospects.