China lets currency plunge below 7, a decade low, after Trump adds new tariffs

BEIJING - China appeared to mount a counteroffensive Monday to new U.S. tariffs by allowing its tightly controlled currency to slide to an 11-year low, a move that could further provoke the ire of President Trump, who believes that Beijing unfairly suppresses the value of the renminbi to bolster Chinese exporters at the expense of the United States.

The Chinese currency on Monday punctured the 7 renminbi-per-dollar floor that had not been broken since 2008. The central bank, the People's Bank of China, downplayed the significance of the milestone but said the rate drop was related to the dispute with Washington.

The currency move came after Trump announced new tariffs Thursday on $300 billion in Chinese goods, effectively escalating the trade war with no end in sight.

Trump accused Beijing of "currency manipulation." He also appeared to call on the Federal Reserve to do more to prop up the economy.

"China dropped the price of their currency to an almost a historic low. It's called 'currency manipulation,'" Trump tweeted Monday. "Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!"

Global markets fell on the fraying relationship between the world's two biggest economies. U.S. markets were set to plunge at the opening bell Monday.

U.S. stocks were headed for a deep fall at Monday's open with Dow Jones industrial average futures showing a decline of nearly 400 points, or about 15 percent. The broad Standard & Poor's 550 index was set to open down about 1.6 percent. The tech-heavy Nasdaq Composite was set to tumble more than 2 percent.

Europe was down across the board, with the London-based FTSE 100 down more than 2 percent, followed by France's CAC down 1.9 percent. The pan-European Stoxx600 was down 1.88 percent in Monday trading.

The drops come on the heels of the worst week of stocks of the year in the United States. If history is a guide, it is going to get worse. August is historically one of the worst months of the year for stocks.

Unlike some currencies whose values are freely dictated by supply and demand, China's central bank sets a daily target price around which the renminbi, also known as the yuan, can fluctuate. The bank steps in when the price strays too far. For a decade, it has not allowed the renminbi to fall below 7, which financial markets consider a psychologically important threshold.

"Influenced by unilateralism, trade protectionism and tariff expectations imposed on China, the renminbi has depreciated against the US dollar today, breaking through 7," China's central bank said in a statement on its website.

China's central bank said it was confident it could keep the currency at a "reasonable and balanced level."

The cheaper the renminbi relative to the U.S. dollar, the more attractive Chinese exports seem to Americans and the more expensive U.S. exports become to the Chinese, thus tilting the balance of trade. Trump has long complained that the renminbi is too weak and the dollar too strong. He has lobbied the Federal Reserve to cut interest rates to help U.S. exporters and boost the U.S. stock market.

China, for its part, has argued that it has kept its currency at a reasonably high level to assuage U.S. concerns. It has also feared that a tumbling currency could spark panic about its slowing economy and trigger an outflow of capital.

Trump's latest tariff escalation, which the president announced Thursday on Twitter, sparked a rush of state media commentary suggesting that the Chinese government was caught flat-footed. State media lashed out at the United States on Sunday, accusing it of negotiating in bad faith and suggesting that Beijing may hold out from negotiating further with the Trump administration.

On Monday, propaganda authorities unveiled a new commentary series to boost popular confidence in the economy and a sense of self-reliance.

"Some people in the United States have reneged on agreements and broken the basic principles of international exchanges and conduct," said an authoritative editorial by the People's Daily, the Communist Party mouthpiece. It which pointed out that Trump raised tariffs 27 hours after the White House released a statement calling the most recent round of talks "constructive."

The drop in global stock prices in recent days, the commentary said, could be blamed "on the tyrannical capriciousness of certain people in America."

Beijing appeared to mount other forms of retaliation on Monday. The government has asked state-owned firms to stop their U.S. agricultural purchases, according to a Bloomberg report Monday that was widely cited by Chinese media. The crop purchases, which came from states that comprise Trump's political base, were supposed to be a sign of Chinese goodwill as trade talks progressed.

Late Monday, China's state broadcaster aired an interview with a top economic policy official who denied that China was breaking its promise of buying U.S. agricultural products. But some of the products China agreed to buy were "not able to enter the Chinese market," he said, because they were too expensive due to the trade war and "lacked competitiveness."

As the dispute drags on, analysts are wondering whether China could set off a new phase of an all-out currency war by simply ignoring U.S. pressure and allowing its currency to plunge. That could be a powerful trade weapon against Washington, but it would also exacerbate the flight of capital from companies and elite Chinese looking to shuttle their wealth out of the country, which Beijing has sought to stem for years.

Still, some Chinese analysts wondered Monday whether the yuan could fall an additional 40 percent, to as low as 10 per dollar.

"The first question, at this point, is whether China wants to weaponize its currency to retaliate in a messy trade war. It remains arguable," Commerzbank economist Hao Zhou wrote in a research note.

But because China has kept the floor at 7 for so many years, Monday's breach could set off a "wave of depreciation" among Asian currencies and roil the financial markets, Hao observed.

"The market implications of breaching 7.0 are tremendous," he wrote. "It looks like a tsunami is coming."