The Chinese government retaliated against US sanctions yesterday by devaluing its Yuan currency, causing a panic on Wall Street. China devalued the Yuan to fall below the seven-to-one ratio against the US dollar, in efforts to offset billion-dollar sanctions on Chinese goods imposed by the US President. The news was met with concern on Wall Street, as investors anticipated an incoming currency war or further impending sanctions from Donald Trump. Global markets are now suffering from the financial exchange of blows, leading some to fear of a looming crash.
Will China and Trump cause a global market crash?
Neither China nor the USA has shown any restraint in escalating the recent trade war, which is dragging down global economies.
China’s currency devaluation rippled through global markets yesterday, tugging at the FTSE 100, S&P 500, French CAC 40 and German Dax which all fell by more than one point each.
The MSCI Asian index also noted a decline of 2.9 percent outside Japan, and Japan’s Topix slid by 1.8 percent.
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China’s renminbi is now at its lowest point since the 2008 financial crisis, leading Donald Trump to label China as a “currency manipulator”.
Experts are now warning the USA cannot withstand an all-out currency war.
Viraj Patel, FX and global macro strategist at machine learning specialists Arkera, said China has “bigger firepower” to prolong the current trade of blows.
He said via Twitter: ”Risks of Trump intervening in foreign exchange markets have increased with China letting the yuan go.”
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“If this was an all-out currency war – the US would hands down lose.”
“Beijing [is] far more advanced in playing the currency game [and has] bigger firepower.”
Tom Elliott, international investment strategist at deVere Group, warned financial markets are reaching “panic levels”.
Writing in a research note, he said: “The nervousness in financial markets over the falling renminbi in recent weeks has reached panic levels.
“Just as in July and August 2015, when China engineered a small devaluation to support growth, global stock markets have panicked.”
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Cui Tiankai, Washington’s China ambassador, warned the US would be unable to weather another global market crash.
Talking to the Wall Street Journal in 2018, the official warned of a potential crash and questioned whether the US could bear the brunt of another financial crisis.
He said: “Although the current economic situation in the US is good, people cannot rule out the possibility of another – I don’t want to use the word ‘crisis’ – a similar situation to what happened 10 years ago.
“But, under the current circumstances, do you think people will still be as ready and open as they were in 2008 to have effective international policy coordination and coordinated stimulus actions?
“I’m not sure about that.”
Dr Kerstin Braun, President of Stenn, an international supplier of trade finance headquartered in London, said she could “confidently” say a global recession is on the horizon.
She said: “The US-China trade war has reached an unprecedented stage, where Trump is playing games with global economies.
“Germany is on the brink of economic meltdown, while markets around the world are suffering.
“His advisors have already warmed him on the limited gains from a ‘scorched earth’ trade war but he’s not listening.
“He lives and dies by the markets, and there’s a real worry Trump will try to tank the dollar in retaliation.
“We can confidently say that a global recession is on the horizon if both Yuan stays at this level and tariffs remain for 4-6 months.
“A 25 percent tariff on all $500 trades for four months would take the economy into a recession.
“The trade war can no longer be solved by economic powers only, and is now becoming a larger issue for the global economy.”