Experts claim that the trade war is approaching the point at which it will cause a severe economic slowdown.
In a reaction to Trump’s threatened additional tariffs on Chinese goods, China has allowed its currency to drop sharply, to the weakest level in more than a decade, and has also halted purchases of American agricultural goods. The new tariffs, which are scheduled to go into effect on September 1st, would target consumer goods including toys.
The Trump administration reacted by labelling China a currency manipulator, escalating tensions further.
“We have a trade situation that is going off the rails,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, stated. “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.”
There is now growing concern about Trump’s use of tariffs as a means of getting concessions. After the US Treasury Department officially designated China as a currency manipulator, the news prompted further selling in global financial markets and raised speculation that China could take even more aggressive steps to devalue its currency.
However, as the Chinese government attempts to offset at least some of the promised tariff by reducing the value of their currency, Chinese imports should become cheaper. Global toy expert, Richard Gottlieb claims this is: “good news for the toy industry as it means that the actual cost to manufacture in China will decline due to the increased value of the US dollar relative to the Yuan. What makes this a more challenging negotiation for the United States is that this is, at least for the Chinese, not just about economics…it’s about respect.”
He continues: “American consumers…do not like high prices. Case in point is this headline from Chain Store Age: “Shopkick survey: 44% of consumers plan to cut back on shopping due to tariffs.”
The fact that China decided not to defend its currency further suggests Beijing is digging in for a longer trade war. The currency move raised the spectre of a currency war, where countries race to devalue their respective currencies.