The Trump administration heightened its trade war with China on Monday by labelling China a currency manipulator. The move came after the currency fell below 7 yuan to the US dollar for the first time since 2008. This is an extension of the downward spiral in diplomatic relations. In simplistic terms, a weaker yuan makes Chinese exports more competitive, or cheaper to buy with foreign currencies and from the US perspective, it is seen as an attempt to offset the impact of higher tariffs on Chinese imports coming into America.
Only last week, President Trump decided to impose a 10% tariff on $300bn worth of Chinese goods, effectively hitting all of China’s imports to the US with duties. US Treasury Secretary Steven Mnuchin is attempting to engage with the IMF to “eliminate the unfair competitive advantage created by China’s latest actions.”
The Dow plunged 767 points, or 2.9%, on Monday. The Nasdaq tumbled 3.5%, suffering its longest daily losing streak since just before Trump’s 2016 election. The VIX (VIX) volatility index spiked 40% to a seven-month high.
The US-China trade friction has created uncertainties which will also pose direct consequences for the EU. The European Commission President-elect, Ursula Von der Leyen, may seek to ease the spill over effects by solidifying relationships in the Asia-Pacific region: The EU has already concluded bilateral agreements with Canada, Chile, Colombia, Japan, Korea, Mexico, Peru and Singapore, and has negotiations underway with India, New Zealand, the Philippines, Thailand and Vietnam.