The trade war between the US and China continued to rage in August. President Trump revealed further tariff increases on Chinese imports to the US; in response, China announced that it would impose additional levies on US$75 billion-worth of US imports into China.
- President Trump accused China of currency manipulation
- Relations between the President and the Fed remained less than cordial
- Fed policymakers regard last month’s rate cut as a “mid-cycle adjustment”
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The trade war between the US and China continued to rage in August. President Trump revealed further tariff increases on Chinese imports to the US; in response, China announced that it would impose additional levies on US$75 billion-worth of US imports into China. President Trump also announced that he intended to order American firms in China to shift their operations back to the US.
“China lost its position as the US’s biggest trading partner”
China’s renminbi fell to its lowest level against the US dollar since 2008, prompting US President Donald Trump to accuse China of manipulating its currency in order to offset the effect of higher US tariffs on Chinese goods, describing the devaluation of the renminbi as a “major violation”. China, however, refuted the claims. Meanwhile, China lost its position as the US’s biggest trading partner in the first half of the year, dropping behind Mexico and Canada.
In a speech at the annual symposium for central bankers at Jackson Hole, Wyoming, Federal Reserve (Fed) Chair Jerome Powell warned that uncertainties over trade policies were weakening global economic growth prospects, and that monetary policy could not provide a “rulebook” to address the impact. In response, President Trump tweeted: “Who is our bigger enemy, Jay Powell or Chairman Xi?”
Minutes from the Federal Open Market Committee’s (FOMC’s) July meeting – at which the FOMC cut its key federal funds rate for the first time since 2008 – showed that policymakers were seeking to counteract “weak global growth and trade policy uncertainty … and promote a faster return of inflation” to the 2% target. Generally, FOMC members regarded the 0.25 percentage-point rise as a “mid-cycle adjustment”, although “a couple” of officials wanted a larger cut of one-half a percentage point. Policymakers expect trade uncertainties to generate “a persistent headwind” for the economic outlook.
US share prices generally fell during August: the Dow Jones Industrial Average Index declined by 1.7% over the month and the S&P 500 Index dropped by 1.8%, while the Nasdaq Index fell by 2.6%. Most S&P US industry sectors ended August in negative territory, according to S&P Dow Jones Indices, with energy and financials particularly badly hit. In comparison, utilities, real estate, and consumer staples performed relatively well, rising over the month.
US manufacturing output contracted for the first time since September 2009 during July, according to Markit, which attributed the slowdown to softening global economic conditions.
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