BEIJING — The trade war between the United States and China may be about to enter a more dangerous phase, one that could saddle the global financial system with new risks at an already turbulent time.
That prospect, which would see Beijing using the value of its currency as a weapon to strike back at the Trump administration, shook world markets on Monday, as nervous investors in Asia and Europe looked for safe places to park their money. Futures markets suggested Wall Street could have a tough opening as well.
The question now is whether Beijing will fully weaponize its currency, allowing it to significantly weaken in value versus the American dollar. That could prompt a harsh response from Trump administration officials who have already warned China against that course.
President Trump reacted on Monday morning on Twitter: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
It could also ripple across the globe, forcing countries that compete with China to consider devaluing their own currencies. That could lead to a zero-sum spiral of devaluations that would damage global growth and lead to even more trade protectionism, threatening the world’s economic integration.
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