Trump plays down fallout from China trade war

Donald Trump has dismissed concerns about the trade war with China, while his top economic aide said the US president was committed to negotiations with Beijing after labelling the country a currency manipulator.

“Massive amounts of money from China and other parts of the world is pouring into the United States for reasons of safety, investment, and interest rates! We are in a very strong position,” Mr Trump tweeted on Tuesday, a day after the US Treasury formally accused China of manipulating the renminbi to create an unfair trade advantage.

Larry Kudlow, the top White House economic adviser, told CNBC on Tuesday that the Trump administration wanted to continue talks with China and suggested that the president could adopt a flexible approach on tariffs. Mr Trump on Friday said he would impose tariffs on another $300bn in Chinese products from September 1.

“The reality is we would like to negotiate,” Mr Kudlow told CNBC. “We’re planning for the Chinese team to come here in September. Things could change with respect to the tariffs.”

Investors and multinational companies have grown increasingly worried about the trade war, with no end in sight to the tit-for-tat escalations. Mr Trump announced the new tariffs on Friday after Steven Mnuchin, Treasury secretary, and Robert Lighthizer, US trade representative, returned from unsuccessful negotiations in China. The move shattered the truce that he reached with Xi Jinping, China’s president, at the G20 in Osaka in June.

On Tuesday, investors brushed aside Mr Trump’s latest salvo in the trade war, and US equities clawed back their steep losses from Monday.

After suffering the largest one-day drop since December, the S&P 500 rose 0.5 per cent, while the Dow Jones Industrial Average and Nasdaq Composite posted their first gains in days.

Mr Kudlow on Tuesday said that Mr Trump remained committed to trade talks despite his criticisms of China on Twitter. “In the course of his tweets and his conversations with the trade team, he would like to continue negotiations,” Mr Kudlow said. “He would like to make a deal. It has to be the right deal for the United States.”

The Treasury’s formal determination of China as a currency “manipulator” comes after Mr Trump’s repeated accusations that Beijing was engineering a weaker renminbi to create trade advantages.

Earlier in his administration, Mr Trump had been convinced to hold off on designating China a currency manipulator over fears that it would dramatically worsen relations with Beijing and damage the prospects of successful trade negotiations.

Larry Kudlow, Donald Trump’s chief economic adviser, said the president wants to negotiate with China despite the latest exchange of provocations © AP

Most experts said that naming China a currency manipulator was a largely political move aimed at creating more leverage for negotiations and ammunition to justify more tariffs on Chinese products. But the move also triggered a process whereby the US can ask the IMF to help seek remedies.

The Treasury on Monday said that Mr Mnuchin would “engage with the IMF to eliminate the unfair competitive advantage created by China’s latest actions”. The IMF and Treasury did not immediately respond to a request for comment on whether the US had made a formal request to the international institution after the designation.

On Monday, China let its currency weaken to under Rmb7 to the dollar, a move that some saw as retaliation for the new tariffs. On Tuesday, the Chinese central bank set the renminbi’s daily reference rate to 6.97, but the currency quickly fell to 7.06 to the dollar.

Investors on Tuesday eschewed the relative safety of the Treasury market, sharply reversing Monday’s flight to less risky government debt, which saw the yield on the benchmark US Treasury note fall to its lowest level since 2016 and a bond market indicator of recession flash its most bearish signal since the financial crisis.

The yield on the 10-year note slid 3.9 basis points to 1.75 per cent, while the yield on the more policy-sensitive two-year Treasury bill fell 2.6 basis points to 1.59 per cent. The dollar rose 0.15 per cent against its peers. US markets had steadied alongside European bourses — the continent-wide Stoxx 600 index gained 0.18 per cent — while Asian stocks were hit. MSCI’s gauge of stocks in Asia outside Japan fell 2.66 per cent.

After his meeting with Mr Xi at the G20, Mr Trump hinted that he was in no rush to reach a deal. On Tuesday, he appeared to suggest that the trade war could continue into next year, as he promised to again help US farmers if necessary. Last month his administration pledged $16bn in subsidies, after a $12bn package last year, to help farmers who have been hit by the collapse in Chinese agricultural purchases.

“As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their president has stood with them and done what no other president would do — And I’ll do it again next year if necessary!” Mr Trump wrote on Twitter.

Some experts believe that Mr Trump is playing a game of chicken with China because of his view that the US economy is in better health and can more easily withstand any pain from the trade war. Mr Kudlow said the American economy was “in terrific shape” while the Chinese “regrettably, are not”.

Follow Demetri and Colby on Twitter: @dimi and @colbylsmith

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