Stock Markets Tumble After China Devalues Its Currency In Escalating Trade War World stock markets saw sharp sell-offs after China let its currency slide, the latest move in its trade war with the United States. The Dow Jones Industrial Average closed down 767 points, or 2.9%.
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Stock Markets Take Another Hit As The Trade War With China Heats Up

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Stock Markets Take Another Hit As The Trade War With China Heats Up

Stock Markets Take Another Hit As The Trade War With China Heats Up

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ARI SHAPIRO, HOST:

The trade war with China escalated again this evening, when the U.S. Treasury Department officially labeled China a currency manipulator. This happened after financial markets fell all over the world today. The Dow dropped 767 points. Treasury's move is the latest sign that President Trump's trade war with China is getting uglier. To talk about it, we're joined now by NPR's Jim Zarroli.

Hi, Jim.

JIM ZARROLI, BYLINE: Hi, Ari.

SHAPIRO: What does this mean that the Trump administration has now officially labeled China a currency manipulator?

ZARROLI: Well, this is considered largely a symbolic step. It's one that the Trump administration has avoided doing until now. Even though President Trump has often talked about China as being a currency manipulator, they haven't taken this formal step. And it allows the United States to take up China's currency practices with the International Monetary Fund to try to get them to address it. It is mainly a big ratcheting-up in tensions between the U.S. and China. And this, really, represents just a further deterioration in the relations between the two countries.

SHAPIRO: And this is connected to what happened in the markets today. Walk us through what it involved.

ZARROLI: Yeah, it was brutal. The Dow Jones Industrial Average was down, I think, 800 points at one time during the day. Lots of big companies like Apple and Caterpillar were down. And this just came after a string of bad days in the markets. Just a few weeks ago, we saw stock prices hitting record highs. Now the Standard & Poor's 500 index has fallen for six days in a row. And then you had all the things that normally happen when stocks fall - energy prices down, interest rate on government debt falling and so on.

SHAPIRO: Explain why now. What happened to cause the markets to crash like this?

ZARROLI: Well, this pretty much does seem to be all about the trade war with China. You know, all summer, it's been looking like maybe the United States and China were headed towards some kind of agreement. They were talking. They have another meeting scheduled for September. But then last week, President Trump, all of a sudden, imposed this new round of tariffs on Chinese imports. He said China had backed off some promises that it had made in trade talks. And then today, as we said, China responded by letting its currency, the yuan, fall in value. Trump was not happy about that. He put out a tweet that said, this is a major violation which will greatly weaken China over time. And then tonight, the Treasury Department took this step of formally labeling China a currency manipulator.

SHAPIRO: Explain why China devaluing its currency matters so much to President Trump and to the economy more broadly.

ZARROLI: Well, remember. One of the big points of Trump's trade war is to reduce the trade deficit with China. China just sells a lot more to the U.S. than the U.S. sells to China. Trump says that China does this by cheating it. For instance, it closes off its markets to American products. And Trump says if he can close this trade deficit, it won't create jobs for Americans. But the problem is when China lets its currency fall, that undercuts what he's trying to do. It means Chinese products are cheaper in the United States. Americans buy more of them. And suddenly, American products cost more in China. So it has the exact wrong effect when the yuan loses value. It means the trade deficit actually gets bigger.

SHAPIRO: And, just briefly, explain why that matters to countries beyond the U.S. and China.

ZARROLI: Well, these are the two biggest economies in the world. And if they're fighting a trade war, it has ripples - effects all over. China, in particular, is just this giant engine of growth. And when its economy slows down, then everybody's economy slows down, so this is not just about China and the U.S. It's much bigger.

SHAPIRO: NPR's Jim Zarroli, thank you.

ZARROLI: You're welcome.

(SOUNDBITE OF TAYLOR MCFERRIN'S "DEGREES OF LIGHT")

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