Is a currency war coming?
President Donald Trump is showing that no economic-policy tradition is sacred in his pursuit of faster growth and lower trade deficits.
Carlos Barria/REUTERS/NewscomPresident Donald Trump now says he's willing to slap tariffs on all imports from China. We're down $375 billion, but other estimates could say $507 billion. Chinese exports would also be relatively cheaper, possibly balancing out suggested increases in tariffs by the Trump Administration. "I really like President Xi a lot, but it was very unfair".
Trump defended his comments to CNBC by saying he is "just saying the same thing that I would have said as a private citizen".
The President was speaking with CNBC when he was asked if there was any limit on his potential "trade war" with China, saying "We're down $500 billion..."
The US also wants China to stop practices that allegedly encourage transfer of intellectual property - design and product ideas - to Chinese companies, such as requirements that foreign firms share ownership with local partners to access the Chinese market.
The dollar index fell immediately after the remarks were broadcast and on Friday morning, a stronger yen saw Tokyo shares edge down 0.5 per cent. However, such a maneuver risks reigniting an outflow of capital that Beijing has spent months trying to halt.
ANALYST'S TAKE: "One theory is that the PBOC is depreciating the yuan because it has not enough ammunition to fight a dollar-for-dollar increase in tariffs". It points out the potential consequences trade escalations could have on American soybean exports, underscoring that China is the world's largest soy importer. Earlier this year, he invoked national security as a justification for taxing imported steel and aluminum.
China imports just under $130 billion in US products each year, according to the Census Bureau, which would seemingly put that country at a disadvantage in the dispute.
"Automobiles - that's the 800-pound gorilla", Brookings' Dollar said.
That came after CNBC on Thursday aired portions of a Trump interview in which he criticized the Federal Reserve's current course of interest rate hikes.
Mr Trump also suggested that higher interest rates left the United States at a disadvantage when compared to the European Union, China and Japan, allowing their currencies to weaken as the U.S. dollar strengthens.
In a Friday tweet, Trump said: "The United States should not be penalized because we are doing so well".
Trump added that he was concerned that the Fed's rate hikes may put the United States at a "disadvantage" while the Bank of Japan and the European Central Bank keep their monetary policy loose.
The Reserve has hiked interest rates five times since Mr Trump took office at the start of 2017.