- Former Obama advisor and World Bank economist Larry Summers tweeted on Monday the latest escalation in the US-China trade war has pushed the world to "the most dangerous financial moment since the 2009 Financial Crisis".
- The comments follow US Treasury officially branding China a currency manipulator after it allowed the yuan to depreciate below the '7 mark' for the first time in more than a decade.
- The developments saw markets across the Asia region plunge upon opening on Tuesday, including in China, Hong Kong, Japan, Korea and Australia.
- For more stories, go to Business Insider South Africa.
US Treasury Secretary Steve Mnuchin's decision to name China as a currency manipulator has wiped billions of dollars of shareholder value from markets around the world.
It signals an escalation in the long-running US-China trade war, which has imperiled the global economy, according to former President Obama advisor and World Bank economist Larry Summers.
Summers, who was also Treasury Secretary during the Clinton administration, tweeted on Monday that the escalation of the trade war between the world's largest two economies had imperiled the world economy.
Markets are now suggesting the highest risk of recession since 2011. Only slightly less than half over the next year. The collapse in medium and long term interest rates is ominous.— Lawrence H. Summers (@LHSummers) August 5, 2019
In a statement released by Treasury on Monday, Mnuchin castigated China as a "currency manipulator" after it allowed the yuan to depreciate below the '7 mark' for the first time in more than a decade.
The escalation has already sent shockwaves through global exchanges, as Asia woke up to the news on Tuesday morning. Australia, the first major stock market in the region to open, plunged nearly 3% in the first 15 minutes of trading before easing back to close 2.44% lower. Exchanges across Asia fared a little better. Hong Kong's Hang Seng immediately fell by more than 600 points to 25,472, before it too clawed back some of its losses to close 1.05% down.
A similar pattern unfolded on many of the region's largest exchanges, all free-falling at the market opening but regaining some of the losses throughout the day. The Shanghai Composite fell around 1.56%, Korea's KOSPI lost 1.51%, and Japan's Nikkei 225 closed down 0.65%.
The most troublingly part of these developments, according to Australia-based global markets analyst Greg McKenna, is that there doesn't seem to be any desire by either President Trump or China's President Jinping Xi to walk away from the trade war. "This is intractable. There's been a complete loss of goodwill and good faith. It's going to have a huge impact because I can't see a circuit breaker ahead," McKenna told Business Insider.
"China is really pushing back. President Trump has been pushing and pushing and pushing and trying to make Xi look weak and now neither of them can back down."
While the decision by the US Federal Reserve to cut interest rates has helped push markets higher, this new trade environment could take the wind out of any further cuts. "The Fed could say in a week or so, 'we're going to cut rates'. That gives the market a lift, but then people will just sell the gain again because everything is just getting downgraded," McKenna said. All eyes will now return to Europe and Wall Street to see how markets react after plummeting on Monday.
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