The trade war took another step in the wrong direction yesterday as China decided to devalue their currency to hit back at the US, this caused a global sell-off in various markets on Monday. The reason for this response from China is to try and off-set the tariffs set by President in hopes to help manufacturers in China offset the new costs of products brought by these new tariffs.
The two notable markets hit the hardest were the Dow Jones Industrial, plummeting 767 points, and the Nasdaq Composite. The Chinese government lowered the yuan below its 7:1 ratio with the US dollar, the first time in the past decade. Experts think the main reason for the currency devaluation is to make the blow a little softer for the imposed tariffs imposed by President Trump.
The markets started to slip on fears of a currency war and the potential response from the US of even higher tariffs. The longer there is a potential of any currency or trade wars between the two powerhouses, the longer it will continue to weaken the global economy. Investors around the world are eagerly looking at the potential response from President Trump which can also result in the US deciding to devalue the US dollar to create the currency war affecting the overall purchasing power of the US.
China also delivered another blow to the agriculture sector by announcing that Chinese companies have stopped the purchasing of American agricultural goods which caused the market to further slip.
It’s not all doom and gloom.
Monday was a record setting day full of bad news for most of the major markets in the US but we do need to keep in-mind that from a YOY (Year on Year) perspective, the Dow is up more than 10% than last year. Also, the potential victim of this trade war with China, the Nasdaq Composite is also up 16% in a YOY perspective.