BEIJING -- China lowered the trading range for its currency for a fourth day on Thursday, showing its potential for use as a trade weapon against Washington, but the exchange rate steadied after declines that alarmed financial markets.
The central bank set the starting point for the yuan's daily trading at 7.0039 to the U.S. dollar. It was the first time since 2008 that it was set below the politically sensitive level of 7 to the dollar.
The yuan was trading at 7.0435 in midafternoon, but that was stronger than the previous day. That soothed investor nerves, and stock markets rebounded.
Beijing alarmed investors Monday by allowing the yuan to fall to an 11-year low against the dollar. That followed President Donald Trump's threat of tariff increases on an additional $300 billion of Chinese imports in a fight over trade and technology.
This week's declines are a "warning shot to the Trump administration," showing Beijing can weaken the yuan in response to trade pressure, Nariman Beravesh of IHS Markit said in a report.
If this marks the start of a new phase in their trade war, "the ensuing financial firestorm could push the U.S. and global economies into recession," Beravesh said.
The yuan's changes this week are small compared with fluctuations of the euro and other major currencies. But Washington complains an unfairly weak currency makes China's export prices too low and swells its trade surplus. That makes any decline politically volatile.
The People's Bank of China sets the yuan's exchange rate each morning and allows it to rise or fall 2% during the day. It can intervene and buy or sell currency -- or order Chinese commercial banks to do so -- to guide the exchange rate.
A weaker yuan would help to offset U.S. tariff increases. But the currency has only declined by about 5% against the dollar this year, which cannot fully compensate for Trump's tariff increases of up to 25%.
Trump's threat last week came after trade talks concluded in Shanghai with no sign of a deal. Negotiators are due to meet again in September in Washington.
Economists say if the Sept. 1 tariff increase goes ahead, the dent in Chinese economic growth could weaken the yuan to as low as 7.2 to the dollar.
Trump's tariff increases on Chinese products have added to downward pressure on the yuan by prompting concern about a slowdown in the world's second-biggest economy.
A weaker yuan might lead to an outflow of capital from China, raising borrowing costs at a time when Beijing is trying to shore up cooling economic growth.
TRADE GAP WIDENS
Separately, Chinese customs officials said Thursday that the country's imports of American goods plunged in July.
Imports of U.S. goods fell 19% from a year earlier to $10.9 billion, customs data showed, though that was an improvement over June's 31.4% fall. Exports to the United States declined 6.5% to $38.8 billion.
Beijing has retaliated for U.S. tariff increases in a dispute over trade and technology by imposing its own punitive duties and suspending purchases of American soybeans and other goods.
China's total exports rose 3.3% over a year earlier to $221.5 billion, rebounding from June's 1.3% contraction during weakening global consumer demand. Imports shrank 5.6% to $176.4 billion, an improvement over the previous month's 7.3% decline.
"Shipments in and out of China held up better than expected last month, but a sustained turnaround still looks unlikely in the near-term," said Julian Evans-Pritchard of Capital Economics in a report.
China's global trade surplus widened by 60% over a year ago to $45.1 billion.
The surplus with the United States was little changed but stood at $28 billion, a level that might fuel American pressure for Chinese concessions in trade talks.
Imports of U.S. goods were down 28.3% in the first seven months of 2019 compared with a year earlier, according to the General Administration of Customs of China.
Washington and Beijing's increasingly costly tariff war stems from U.S. complaints that China steals or pressures companies to hand over technology. The United States and other Chinese trading partners complain Beijing's plans for government-led development of global competitors in robotics and other fields violates its market-opening commitments.
Trade has weakened since Trump started raising tariffs on Chinese goods in June 2018. Beijing retaliated with its own penalties and ordered importers to find non-U.S. suppliers.
The fight has battered exporters on both sides and disrupted trade in goods from soybeans to medical equipment.
Trump and President Xi Jinping agreed in June to resume negotiations follow-up talks in Shanghai ended with no sign of agreement.
Economists warn that the truce is fragile because the two sides still are separated by the disagreements that caused talks to break down.
Trade weakness has added to pressure on Xi's government to shore up economic growth and avoid politically dangerous job losses.
Beijing agreed last year to narrow its trade surplus with the United States by buying more American natural gas and other exports but scrapped that plan after one of Trump's tariff increases. The Chinese government said in June that any purchases must be at a reasonable level, suggested Beijing was becoming more cautious about making big commitments before it sees what Washington offers in exchange.
Chinese leaders express confidence their economy can survive the tariff fight.
Importers of American soybeans and other goods are trying to switch to Brazilian, Russian and other sources, but supplies are limited and costs are higher. Farmers who use soybeans as animal feed have been told to switch to other grains.
While American exporters have been hit hardest, Chinese industries including electronics that Beijing sees as its economic future have suffered double-digit declines in sales to the United States, their biggest market.
Economists say that even if a settlement with the U.S. is reached, China's exports this year will be lackluster because of weak global demand, putting pressure on manufacturers that support millions of jobs.
Business on 08/09/2019
Print Headline: China's yuan set lower for 4th day