The current "trade war" with the Chinese showcases a lot of President Trump's quirks. Beijing gives him an easy target to pick on, given their disdain for free speech and freedoms in general, their abuse of the Uighur and geopolitical bullying in the South China Sea; it's hard to have too many people who will come to China's defense.
Trump's default style is to bully, to assume that no one dare mess with him or the US. A show of strength will get everyone to cower in respect to the Big Man. China's big enough where they can afford to call Trump's bluff.
They're also not a democracy. US soybean farmers whose pocketbooks have been lightened due to China passing on their normal imports have the option of lobbying their members of Congress to have them short-circuit the trade war as well as voting for a less belligerent and short-sighted leader next year. The Shanghai shopper whose tofu just shot up in price doesn't have that option. Beijing feels that they can manage an economic war of attrition better than the US can, and they're most likely correct.
In the meantime, the reduced exports and higher-priced imports (and higher priced domestic alternatives) will tend to lead to downward pressure on both economies. That has spill-over effects in a number of areas.
One is the drop in the Fed Funds rate last week. Trump has been agitating for lower rates for a while. As a real estate tycoon, Trump likes low interest rates and easy money so that he can get mortgages on his properties cheaper. As a populist, he'll cater to the folks who need or want to borrow over the lending class who's looking to conserve wealth rather than create it. The Fed has to balance fighting inflation with promoting economic growth, and the have nots (or want-to-have-mores like Trump) will want it to err on the growth side; loose money has always been a populist tool all the way back to William Jennings Bryant and free silver.
The Fed isn't moving as much due to that pressure but to the economic slowdown that the trade war will help create. They're trying to clean up Trump's mess rather than to enable it.
One of the other side effects is a drop in value in the Chinese yuan. China's often erred on the side of keeping the yuan low in order to encourage exports. However, if the trade war results in fewer Chinese exports, there will be less demand for the yuan and the value will go down naturally. In that case, China doesn't have to work at devaluing things artificially if the market will do it for them; you don't need to have the sprinklers on in the rain.
That's the take of this Lowy Institute piece, noting that the US might be more of a "currency manipulator" than the Chinese. Lowering interest rates, as the Fed has done, makes the dollar less attractive, as folks looking at US short-term deposits as an investment will get a lower return and look elsewhere. Raising interest rates is a classic way of getting the value of the currency up amidst a value downturn, and lowering rates will tend to devalue the currency.
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