Is There Really a Truce at G20 between Trump and Xi?

An eye for an eye. Beijing has retaliated the U.S. President Donald Trump’s threat last Thursday by allowing its currency—Chinese yuan—on Monday to fall at 7 yuan / 1 dollar for the first time since 2008 to what analysts call it a psychological red line—the key 7 yuan to the dollar level.

 

Trump had threatened to impose 10% of import tariffs on $300 billion worth of Chinese goods on August 1, 2019, after claiming that China was not quick enough on negotiating the deal while breaking the promise to buy U.S. agricultural products.

China responded quickly by halting new purchases of U.S. agricultural products, according to state-run media, sending the global stock market to plunge on Friday, August 2, 2019.

The markets continued to slide on the next Monday after seeing no sign of yielding from neither the U.S. or China. To make things worse, China followed its first retaliation by to what believed to be letting the yuan slid to 7 yuan per dollar for the first time since 2008. Strategists had stated that this is the strongest counter from China by far.

In a panic, risk markets sold off and investors rushed into safety plays, like Treasurys, out of concern that the latest escalation means a trade deal cannot be reached and risks of a global recession are now higher than they were as VIX Index jumped 6.98 points or 39.64% overnight.

 

Soon after, Trump blasted China for manipulating its currency while tweeted that this was a major violation which would greatly weaken China overtime. As a repercussion, the U.S. Treasury labeled China a “currency manipulator” after the end of the trading session on Monday.

On the other hand, China’s central bank denied it was devaluing its currency in response to Trump’s latest tariffs, however, an official was quoted anonymously saying it was a reaction to tariffs.

 

Investors also caught a glimpse of details from the sideline trade talks between Trump and Xi at the G20 summit in late June in Osaka, Japan. They and analysts called it a truce, but was it really a truce? After a little over a month after the summit, the impatient Trump had fired another shot to the person he supposedly had shaken hands with a month ago. Not letting his motherland being attacked, Beijing also retaliated. And the rest was just a mess left by two economic giants.