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News Link • China

Former Chinese Central Banker Warns Beijing May Dump Treasuries In Retaliation

•, by Tyler Durden

After markets first plunged realizing that the trade war was going to continue well into 2020 - and likely beyond the next presidential election - China initially responded by instructing SOEs to suspend imports of US agricultural products and then allowing the CNY to devalue past the 7.00 level for the first time since 2008, as the trade war became a currency war.

Almost immediately, in response to the CNY devaluation, the US Treasury designated China a currency manipulator for the first time in 25 years under section 3004 of the Omnibus Trade and Competitiveness Act of 1988; the escalation remains open ended with policy makers indicating the potential for further retaliation, although no further tariff or non-tariff actions have yet been specified.

Meanwhile, China's currency devaluation has resulted in a negative feedback loop, in which higher tariffs lead to more yuan devaluation, leading to even higher tariffs, and even more devaluation, and so on, until some exogenous events breaks this cycle.

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