China has intensified its trade war with the US, and allowed the Yuan hit its lowest. The Chinese government has asked its state-owned companies to suspend imports of U.S. agricultural products.
This means that China’s state-run agricultural firms have stopped buying American farm goods, and are waiting to see how trade talks progress. This includes soy and corn, which is a direct reversal from the attitude that China was displaying the weekend before.
On Thursday, US President Donald Trump proposed adding a 10% tariffs on another $300 billion in imports from 1 September. This will mark an abrupt escalation of the trade war between the world’s largest economies shortly after the two sides resumed talks. A weaker yuan exchange rate would mean Chinese products would be cheaper in terms of US dollars, maintaining their competitiveness in the US despite the tariffs.
Currently, one US Dollar buys 7 Chinese Yuan, which is an exchange rate that is expected to hurt whatever Yuan reserves US companies might have had. According to China Monitoring Post, the People’s Bank of China (PBOC) blamed the drop “to unilateral trade protectionism, as well as expectations of more tariffs on China”. “The PBOC has the experience, confidence and ability to keep the yuan exchange rate basically stable at a reasonable equilibrium level,” said the central bank.
Experts have however warned that the latest escalation in tensions between the U.S. and China will reduce the chances of both sides reaching a trade deal this year. Since the start of the trade war in 2018, the US has imposed 25% tariffs on $250 billion of U.S. imports from China. China has since retaliated by slapping elevated levies on billions of dollars of American products that it buys. The US is yet to respond to the bold move by China.