The U.S. Treasury has called China a currency manipulator, which will certainly step up the trade war whilst making tech stocks plunge into the bargain basement. The major result of the ongoing hostilities between the U.S. government and China has been a slowing down of investment dollars that once flowed from Chinese tech companies into U.S. tech companies.
It's kind of shocking to see considering most everything one can buy in the U.S. was made in China. Acquisitions and investments made by Chinese companies are falling apart over concerns from the Committee of Foreign Investments in the U.S. and the tariffs slapped on Chinese imports have smashed U.S. stock prices (that includes the tech sector).
A Halt To U.S. Imports
Reported by techcrunch.com, this news comes less than 24 hours after the Chinese government announced a complete halt on U.S. agricultural imports. More importantly, the Bank of China has let the country's currency slide in value against the U.S. dollar to above the seven-to-one figure that was considered a line-in-the-sand for trade.
All of this escalation is fueling economists' fears that the global markets will see a recession within the next 9 months; or at least they are more likely to happen. In an analyst report, Morgan Stanley said, "We take its literal message of planned tariffs quite seriously. There's a pattern of responding to insufficient negotiation progress with escalation."
Calling China a currency manipulator means the U.S. will plead its case before the International Monetary Fund to take steps to stop what Treasury Secretary Steven Mnuchin called "the unfair competitive advantage created by China's latest actions."
China's activities have been to prop up the country's currency in the face of internal pressures to break the seven-to-one floor that had been set on the Renminbi's value versus the dollar. China's economy is slowing down due to U.S. tariffs, yes, but also because economies in Europe and Asia are slowing down. This hits exports on China. A lot of China's current growth is due to debt-financed big infrastructure projects.
All that could change as Chinese goods become cheaper in China thanks to the falling value of Chinese currency. Axios actually reports that what China is doing doesn't actually fall under the definition of currency manipulation as it's legally defined. To be dubbed a currency manipulator, a country needs to spend 2% of its GDP over a 12-month period on currency manipulation. If anything, China was boosting the Yuan because the President was calling for sanctions last week.
What Weaker Currency Means
Weaker currency means that the consumers in China, as well as businesses, will have to pay more for goods and services that are dollar-denominated. With a lot of cash in the country, it could lose its competitive edge when it tries to coax talent into the country. The loss of spending power may also push developers and programmers the country needs to shift from a manufacturing-based economy to look for work elsewhere.
Stock markets are already taking note of the new U.S. move. Futures show the Dow Index to be down around 350 points and the Nasdaq and S&P 500 indices both trading much lower.