Trump escalates trade war, China halts U.S. ag buys

Stocks plummet as China also devalues currency

President Trump addresses backers last fall at a pre-election campaign rally in Murphysboro. (One Illinois/Ted Cox)

President Trump addresses backers last fall at a pre-election campaign rally in Murphysboro. (One Illinois/Ted Cox)

By Ted Cox

President Trump’s threats last week to impose new tariffs on Chinese goods produced a vicious retaliation Monday as China halted U.S. farm buys and devalued its currency, causing U.S. stocks to drop over fears of a global recession.

CNN reported that “Trump’s trade war with China is starting to get out of hand.”

After U.S.-Chinese trade talks broke off last week without progress walking back the tariffs Trump imposed last year or China’s retaliatory tariffs on agriculture products like pork and soybeans, Trump threatened to impose a new 10 percent tariff starting Sept. 1 on an additional $300 billion in Chinese imports — including smartphones, toys, and sneakers.

China reacted Monday by allowing the yuan to fall below seven to the dollar in the exchange rate, which one analyst called “a psychologically significant threshold.” On the surface, it means U.S. buyers will have to spend less to purchase Chinese goods, thus undercutting Trump’s U.S. tariffs, but it could also prompt a global currency war. Investors switched to buy gold Monday — a classic response to chaos in the markets.

According to CNBC, a team of analysts for the Morgan Stanley investment firm warned that the escalating trade war threatened to cause a global recession within nine months, prompting U.S. stocks to drop Monday. The Dow Jones industrial average opened above 26,000, but dropped 767 points, or 2.9 percent in overall value, to 25,717.74. Technology stocks, involving significant trade and production with China, were among the hardest hit.

Separately, Bloomberg News reported that the Chinese government ordered “its state-owned enterprises to suspend purchases of U.S. agricultural products.”

That offered no relief to Illinois soybean, corn, and hog farmers who bore the brunt of China’s retaliatory tariffs last year.

Trump approved $12 billion in bailout payments to farmers hurt by the trade war last year, and plans to distribute another $14.5 billion to U.S. farmers through the so-called Market Facilitation Program this year, but a new study released last week found that the overwhelming majority of payments went to the biggest, most well-off farms. The top 1 percent of recipients got an average handout of $183,000, but the bottom 80 percent of farmers got an average payment of less than $5,000.

What’s more, with the record deficits the Trump administration is running after the 2017 tax bill gave gave big tax reductions to the richest citizens and largest businesses, the federal government is in effect borrowing from China to make those bailout payments.

Roger Johnson, president of the National Farmers Union, the nation's second-largest general farm organization, told Bloomberg, “Trade policy is not a game — it has real and serious consequences for rural America," adding, "The long-term implications for our country's reputation as a reliable trading partner are likely to be even more damaging.”

A University of Illinois study last fall warned that soybean farmers faced the long-term loss of business to Brazil and Argentina as China increasingly bought soybeans from South America rather than pay tariffs on U.S. imports.