At Some Point US Had to Take on China

A man sits in front of a board showing market information at a securities brokerage house in Beijing

Goldman Sachs said it no longer expects a trade deal to be struck before the November 2020 US presidential election, while Morgan Stanley warned that more tit-for-tat tariffs could tip the world economy into recession by the middle of next year.

Capital Economics now expects the yuan to end the year at 7.30 per U.S. dollar, compared with previous forecasts of 6.90.

As reported earlier, the US Secretary of Treasury is going to apply tothe International Monetary Fund for elimination of "unfair advantages created by China".

"Escalation of U.S. -China trade frictions has deteriorated market sentiment, which will eventually make Treasury yields go lower and the yen go higher", said Tohru Sasaki, head of Japan markets research at JP Morgan Securities in Tokyo. The Dow Jones Industrial Average was up 0.7% at 25,886 in afternoon trading in NY. In the U.S., the Nasdaq Composite Index dropped 278.03 points, or 3.47 percent, to close at 7,726.04 on Monday.

China's Shanghai Composite Index opened down 1.58% when trading began on Tuesday, while the Shenzhen index opened down 2.00%.

But downward pressure on the yuan is building after the central bank let the currency slide through the key support level of 7 to the dollar on Monday and it tumbled to 11-year lows.

Trump's announcement of an additional 10% tariffs on $300 billion of imported Chinese goods, has forced markets to reassess the potential for a trade deal between the US and China.

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The Chinese Foreign Ministry said that countermeasures would be installed if the USA set in motion the tariff hike, with Foreign Minister Wang Yi stressing that tariffs are "not a constructive" way to resolve the bilateral trade war.

But forex trading on Tuesday was calmer, with the onshore yuan edging down 0.01% to 7.0466, and the offshore currency strengthening 0.24% to 7.0796.

King, who calls himself a "China hawk", acknowledges that China allowed its currency to drop, but argues it has actually been manipulating its currency upwards for a number years. He indicated he would like the Federal Reserve to counter the move.

"While we can not rule out the possibility of political negotiations leading to unexpected outcomes, we think it is unnecessary to worry about recession as various fiscal and monetary stimulus should support the economy of the two courtiers", he said. China placed retaliatory tariffs on USA -grown products including soybeans.

He predicted the yuan would continue weakening.

After analysing government data, Tariffs Hurt the Heartland found that American businesses and consumers have paid more than US$27 billion in new tariffs from the beginning of the trade war in 2018 through June of this year.

"Pouring money and devaluing currency is not the answer", White House economic adviser Larry Kudlow told reporters. -China trade frictions following major foreign exchange volatility in the previous session. But it will be more hard to form consensus on industrial policy, technology policy, and standards and beliefs in commerce and trade.

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