The Dow Jones Industrial Average opened 406.87 points or 1.54% lower on Monday after China’s currency value fell to more than a 10-year low versus the dollar after U.S. President Donald Trump added onto the trade tensions by imposing additional tariffs.
On Thursday, U.S. markets pulled back after Trump announced an additional 10% tariff on USD 300 Billion worth of Chinese goods starting on September 1st. Trump’s announcement last week caused the Dow to fall as much as 600 points from the day’s high to the low.
In retaliation, China devalued the yuan in a way to fight against Trump’s tariffs. A weaker currency can help Chinese businesses affected by the tariffs by offsetting the costs of higher tariffs. Analysts at Capital Economics believe that China’s move has “abandoned” hopes of reaching a trade deal between the U.S. and China.
“China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” tweeted Trump on Monday morning.
Analysts believe that the weaker currency could soften the blow the U.S. has dealt to China with its tariffs, according to CNN. The cheaper yuan sparked concern because the U.S. could possibly respond with more tariffs.
“Risks of Trump intervening in foreign exchange markets have increased with China letting the yuan go,” tweeted Viraj Patel, FX and global macro strategist at Arkera. “If this was an all out currency war – the US would hands down lose. Beijing [is] far more advanced in playing the currency game [and has] bigger firepower.”
Hong Kong’s Hang Seng index declined by over 2.85%, while the Shanghai Composite edged lower by 1.69%. Japan’s Nikkei 225 fell by 1.74% and South Korea’s KOSPI decreased by 2.56%.
Throughout June and July, U.S. markets were experiencing a bullish market, however, amid trade war tensions between the U.S. and China caused concern among investors. Primarily, optimistic news by the Federal Reserve and rate cuts caused markets to surge during the two months.