Trump flirts with currency war in escalating conflict with China

WASHINGTON - President Donald Trump on Thursday took a step closer to sparking a currency war in the escalating conflict with China, saying he is not happy with the strong US dollar.

Trump has pursued a policy of maximum pressure, including subjecting all Chinese goods to punitive tariffs as of September 1, and accusing Beijing of manipulating its currency to gain a competitive edge.

In a move that breaks with decades of US policy, Trump on Thursday seemed to call for a weaker dollar to help American companies compete.

"As your President, one would think that I would be thrilled with our very strong dollar. I am not!" he said on Twitter.

"The Fed's high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing, ... John Deere, our car companies, & others, to compete on a level playing field."

The latest outburst comes days after the US Treasury labeled Beijing a currency manipulator for allowing the yuan to depreciate slightly in the face of new US tariffs.

Economists roundly criticized the move, saying Beijing if anything has been intervening in currency markets to keep the yuan from falling further in the face of an economic slowdown and the uncertainty created by Trump's trade war.

"Labeling China as a manipulator is totally fallacious. They are not manipulating," said C. Fred Bergsten, founder of the Peterson Institute of International Economics.

"It's fake news, as Trump would say," Bergsten told AFP.

But while he said the move stops short of a full-blown currency war, the risks are real.

If the administration tries to sell dollars to weaken the exchange rate and Beijing fights back with its own intervention, that could trigger a war, he said.

"Getting into a currency war would be very risky business. Particularly with this administration, which nobody trusts anyway," Bergsten said.

LEANING AGAINST THE WIND

William Reinsch, a trade expert and former congressional adviser, warned of the risks of weaponizing currencies, something done in the early 1930s, that exacerbated the Depression.

"The worst thing that can happen is we get into one of these cycles of competitive devaluation," he told AFP.

For decades, US administrations of both parties have steadfastly advocated keeping the dollar strong since that provides stability and can hold down inflation by making imported goods less expensive.

But a strong currency also makes US exports more expensive. Construction and farm machinery manufacturer Caterpillar recently lowered earnings targets for this year, given declining sales in China amid the tariff battle.

Reinsch, of the Center for Strategic and International Studies, said Trump has painted himself into a corner and his hardline tactics with China make a deal less likely.

"He really is in a kind of a box, because they're not going to do what he wants and there's not an easy way out," he told AFP.

Trump also has been relentlessly pressuring the Fed, demanding it cut interest rates in almost daily tweets.

"With substantial Fed Cuts (there is no inflation) ... the dollar will make it possible for our companies to win against any competition," he said on Twitter.

US central bankers "have called it wrong at every step of the way," Trump said.

But economists strongly refute this notion and say it is the strength of the US economy compared to others like the slowing eurozone, that has pushed up the value of the dollar.

And Trump's own trade war adds to uncertainty that has caused businesses to hold off on investment, and for investors to seek safe havens, including buying US dollars, they say.

And Bergsten cautioned that any Trump administration bid to weaken the dollar is unlikely to be effective in any case.

"Any effort to weaken the dollar through intervention or anything else would be really leaning against a very strong wind and I don't think there is much prospect for their finding a way to do it."

source: news.abs-cbn.com

Adidas fears 'everybody will lose' in US-China currency war

FRANKFURT AM MAIN - German sportswear maker Adidas warned Thursday that "everybody will lose" if a currency war ignites between China, the United States, and other countries, while reporting continued strong earnings in its second quarter.

American tariffs on Chinese goods -- with another $300 billion in imports targeted by President Donald Trump last week -- are less harmful to the brand with the three stripes than a potential exchange rate battle, chief executive Kasper Rorsted said.

"What is much more severe is that we start to have a currency war between China, the US and the rest of the world, that's going to be a situation where everybody will lose," he told journalists in a telephone conference.

Since the tariffs announcement, Beijing has allowed the yuan to sink below a seven-to-the-dollar lower bound its central bank had previously defended, prompting the US Treasury Department to cry currency manipulation.

"Currency war will over time slow the economy down," Adidas chief Rorsted predicted, as well as imposing a "severe impact" on global businesses like the shoes and sportswear maker.

Weaker exchange rates against the euro would batter Adidas' sales and profitability through the conversion into its home currency, as the US and Chinese markets combined account for 45 percent of revenue.

SPRINTING AHEAD

For now, the Bavarian group says its strong growth continued into the second quarter, seeing its biggest problems in overcoming bottlenecks in its supply chain.

Net profit at the Bavarian group added 34 percent over April-June 2018, reaching 531 million euros ($595 million) to beat analysts' forecasts.

Revenues grew by 4.7 percent to 5.5 billion euros, making for an operating profit up 8.6 percent at 643 million euros.

Sales at the flagship Adidas brand were up four percent thanks to its "sport inspired" streetwear, while its "performance" sportswear fell back in comparison with 2018's football World Cup-powered revenues.

Long-struggling American subsidiary Reebok returned to growth in sales in the second quarter, adding three percent thanks to its "classics" line.

The unit also returned to profitability, Rorsted said.

Adidas' online direct sales business grew 37 percent, while in its different regions only China saw double-digit growth.

North America picked up the pace of sales expansion as the group managed to overcome supply bottlenecks for in-demand products, while sales in Europe held steady.

Adidas' closely-watched gross margin increased 1.2 percentage points, to 53.5 percent, a slower pace than in the previous quarter.

"Higher air freight costs to mitigate the supply chain shortages and a less favorable pricing mix" weighed on profitability, the group said.

Looking ahead, the group stuck to its 2019 forecasts for sales growth between five and eight percent, adjusted for currency effects.

Its gross margin should increase to 52 percent and net profit come in between 1.88 and 1.95 billion euros.

source: news.abs-cbn.com

Falling yen raises specter of 'currency war' in Asia

SINGAPORE - From South Korea to Indonesia and India, monetary authorities are preparing to let their currencies weaken as a falling Japanese yen makes their economies uncompetitive, and drags them into what some policymakers are calling a "currency war".

The Indonesian rupiah, Malaysian ringgit, Thai baht and other currencies had been sliding gradually against a broadly strong U.S. dollar this year.

They hit fresh lows this week, their sudden declines coming after the yen dropped to a 13-year low on Friday. The region's normally interventionist authorities, however, kept their feet off the brakes.

An adviser to India's finance minister said the country's export growth was flailing not just because of weak global demand but also as a result of the currency-weakening monetary stimulus policies pursued in major economies such as Japan and the euro zone.

"Call it competitive devaluation, currency war or something else, the fact is such policies are having and will have implications for trading partners," the adviser said. "We cannot afford to let our currency become less competitive."

India's rupee has been an outperformer as most other currencies ceded ground to a dollar that has been pushed up by expectations that U.S. interest rates will rise at some point this year.

Indonesia's rupiah is down nearly 8 percent against the dollar so far in 2015, eclipsing a 7 percent decline in Malaysia's ringgit.

While the yen has lost 16 percent in 9 months and the euro has fallen 18 percent since early May 2014, Asian currencies have depreciated far less, making their exports less cheap in international markets.

Theoretically Asian currencies ought to be weaker as, in general, inflation levels in the region are higher than those of major trading partners, most of which are dicing with deflation.

Yet, data from the Bank for International Settlements (BIS) shows China's yuan was 30 percent higher in April in trade and inflation-adjusted terms than in 2010. Korea's won was 15 percent more expensive than in 2010, while the yen was 28 percent weaker.

Korea's exports have fallen every month this year while Chinese exporters have seen both their sales and profits fall.

"There is a risk of currency war where the dollar tends to strengthen, so other countries will be affected," Indonesian central bank Governor Agus Martowardojo told reporters on Monday.

NOT AS BRUTAL AS 1997

There are parallels with 1997 when an extremely weak yen, highly uncompetitive exchange rates and current account deficits culminated in the Asian currency crisis.

"I don't think it is going to get as brutal as that," said Gaurav Saroliya, a macro strategist at London-based Lombard Street Research, listing crucial differences.

Inflation is less of a problem than it was then, making it easier for Asia to cope with weaker currencies. Asian central banks possess far bigger currency reserves. Moreover, the regions' markets are more flexible and foreign investment flows are less volatile than they were in 1997.

Without going anywhere near as far as the massive quantitative easing policies employed in Japan and Europe, authorities in Asia have been subtly nudging their currencies lower.

India's central bank effectively capped the rupee by mopping up investment inflows and building currency reserves.

Thailand eased controls on domestic investors moving cash abroad, while Indonesia loosened its tight grip on rupiah trading.

South Korea is particularly sensitive to the yen's faster depreciation as its exporters compete with Japanese firms in the same markets for cars and electronic goods.

Officials in Seoul told Reuters, however, that they lack the tools to push the won down to the same extent as the yen.

Whereas Asian currencies have undergone a creeping depreciation since 2014, the yen's fall last week could prove to be a trigger for Asia's currencies to weaken further.

"A lot of these countries are facing a double whammy of poor exports because of a very uncompetitive exchange rate, thanks to Japan and years of portfolio inflows during the QE environment, and also poor household demand," said Saroliya.

"It is overall a major headwind. So they will be forced into choosing a weaker exchange rate through monetary easing or non standard measures."

source: www.abs-cbnnews.com