Key Moments of the Week Trump’s Trade War Turned Currency Feud

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It’s Peter Navarro’s economy now.

That’s one way to view the resurgence of the hawkish White House trade adviser and the volley of events during the past week between Washington and Beijing. Relations between the world’s two biggest economies sank to worrying depths and surging markets finally absorbed the reality that trade wars have real economic consequences.

As China matched President Donald Trump’s higher tariffs and name-calling with painful moves of its own, the arguments from Navarro were heard over those of Treasury Secretary Steven Mnuchin and Larry Kudlow.

The result was another blast of Trump tariffs and an official U.S. declaration of China as a currency manipulator. China’s response was a boycott of American farm products and a clear signal that its currency, the yuan, can help cushion the tariff blow. Trump’s response to that response was a not-so-subtle softening of dollar policy, delivered by tweet.

So a deal that just a few months ago seemed to U.S. officials to be 90% complete has become tough to imagine any time soon.

Kudlow and other advisers “have tried unsuccessfully to get Trump to understand the consequences of this trade war but one adviser, Peter Navarro, I think has the president’s ear,” Greg Valliere, chief U.S. policy strategist with AGF Investments, said on Bloomberg Television. “As long as Navarro is still that potent, I think the trade war will persist.’

Here are the key developments of the past week (click on the links to read more):

• The escalating trade war between the U.S. and China is nudging the world economy toward its first recession in a decade.
  • Trump says it’s fine if U.S.-China talks planned for September are canceled.
• In the fight between Trump and Chinese President Xi Jinping, both leaders are making big bets that may backfire.
  • Trump’s trade-war arsenal is far from exhausted.
• China’s move to let its yuan weaken to its lowest level in more than a decade and the Trump administration’s labeling the nation as a manipulator opens up a new front the world’s central banks must contend with: a currency war.
  • Trump’s China problem is that a weak yuan is a strong weapon: His tariffs lose potency in the face of a currency shift that favors Chinese exporters.
• The next barrage of U.S. tariffs on Chinese products may hurt more than the others because many American businesses are out of room to shield their supplies from the new import taxes.
• The Trump administration is rushing to finalize a list of $300 billion in Chinese imports it plans to hit with tariffs soon, as U.S. companies make a last-ditch appeal to be spared from the latest round of duties.
• The global bond market is sounding the alarm that things won’t be able to carry on much longer before a recession strikes.
• Here’s an item on Trump’s trade agenda that relies on Democrats’ help that’s progressing surprisingly well: his new Nafta, dubbed the U.S.-Mexico-Canada Agreement.
• Japan granted South Korea the first export license under a stricter monitoring system, lessening fears of disruptions at the world’s largest technology firms.
• U.K. officials wondering how to cope if Britain crashes out of the European Union can agree that there’s no real precedent to illustrate how such a supply-system shock will pan out.
• While the world focuses on the ongoing trade war between China and the U.S., another spat has been brewing between commodity giant Indonesia and the EU.
• German exports posted their steepest annual decline in three years, underscoring the plight of a factory sector hurt by trade tensions. The U.K. economy, meanwhile, shrank for the first time in more than six years in the second quarter.

--With assistance from Shawn Donnan and Jenny Leonard.

To contact the reporter on this story: Brendan Murray in London at brmurray@bloomberg.net

To contact the editors responsible for this story: Zoe Schneeweiss at zschneeweiss@bloomberg.net, Brendan Murray

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