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A 'currency war is much more dangerous than a trade war'

Chelsea Lombardo
Production Assistant

U.S. stocks gained momentum Tuesday after taking a deep dive on the heels of China allowing the value of its yuan to weaken to 7 per dollar.

This comes after President Donald Trump announced that the U.S. would be implementing 10% tariffs on the remaining $300 billion worth of Chinese goods, effective Sept. 1.

Keith Bliss, senior vice president and head of investment banking at Cuttone & Co., told Yahoo Finance’s The First Trade that when fluctuations hit China’s currency, the country’s government is likely not blindsided by the changes.

“China understands quite well how they can move their currency around to get what they want out of certain things,” Bliss said. “They think they have the leverage. It's described as they use the yuan as both a sword and a shield. [A] shield to protect their own exporters, but also, a sword if they need to get what they want with some of their trading partners and negotiating partners. And I think that's what you're seeing going on right now.”

Face to face of US dollar banknote and China Yuan banknote for 2 biggest economic in the world which now United states of America and China have war trade.Both countries conflict increase tariff tax.

The U.S. Treasury Department labeled China as a currency manipulator late Monday. But a Capital Economics note said there was no evidence to support Treasury’s claim that China had been intervening to push down the value of the yuan. The People’s Bank Of China released a statement stating that China does not engage in “competitive devaluation” and adheres to a market-determined exchange rate system.

“I do think the Chinese do need to be very careful because the U.S. has the ability to manipulate the dollar and have a far more reaching impact than the Chinese would by manipulating the yuan or pushing the yuan down,” Bliss said.

“So this is where we are at this point in time. But hopefully, it will get both sides back to the table, and they'll get something done, because a currency war is much more dangerous than a trade war.”

Chelsea Lombardo is a production assistant for Yahoo Finance. You can find more of her work here.

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