The Trade War Isn’t The Only Reason For The Dow’s Big Drop

1. Last week, President Trump threatened to place a 10 percent tariff on $300 billion worth of Chinese imports on September 1 unless trade talks with China showed more sign of progress.
2. But it’s safe to say that enforcing the deal would require Chinese President Xi Jinping to expend a lot of political capital, and even alienate certain politically powerful groups—including Chinese industries that would face competition if American firms and goods were allowed more access to China.
3. He’s also unhappy that China hasn’t followed through on a promise to purchase more U.S. agriculture goods, like soybeans, in exchange for the United States allowing our chipmakers (think Intel and Qualcomm) to supply chips to Huawei, a Chinese telecommunications giant.
4. But the one channel where China could “retaliate” was in their currency rate, because a weaker Chinese currency helps keep Chinese goods attractive to American buyers, despite higher tariffs.
5. Trump aimed to fix this, and several months ago his trade team, led by Lighthizer, got China to agree to allow U.S. firms more access to China, increase intellectual property protection and enforcement, and end protectionist measures aimed at restricting the import of U.S. goods, among other things.
6. But America doesn’t make Chinese companies do this, and even American companies that don’t operate in China are at risk of Chinese corporate espionage.
7. Already, America has tariffed $250 billion of Chinese imports at 25 percent, and if tariffs are placed on the $300 billion basket of goods, this would increase tariffs on all Chinese imports to the United States.
8. China’s currency, called either the yuan or the renminbi (RMB), is pegged by the Chinese central bank (the People’s Bank of China, or the PBOC) to a basket of currencies, chiefly the dollar.
9. Then several years ago, fearing serial bubbles and a slowing Chinese economy, capital began to flow out of China and the PBOC found itself instead defending its currency from weakening too much.
10. U.S. firms that seek to operate in China are forced to partner with a Chinese competitor via “joint venture requirements.” That competitor gets to see their business practices and trade secrets.
11. The PBOC’s move to allow the RMB to weaken against the dollar offsets the sting of tariffs on Chinese exporters, but it carries two important risks for China.

https://thefederalist.com/2019/08/07/trade-war-isnt-reason-dows-big-drop/