Trump Takes On China in Tweets on Currency, South China Sea

Updated on
  • President-elect had been criticized after call with Taiwan
  • Offshore yuan drops amid concern China to be named manipulator

Trump's Taiwan Call Riles China

Donald Trump took on the Chinese government via social media on Sunday, rejecting criticism of his decision to take a phone call from Taiwan’s president at the risk of triggering a backlash from Beijing.

The U.S. president-elect told his 16.6 million Twitter followers that he wouldn’t be told by China who he should or shouldn’t talk to, and reiterated some of the grievances about China used in his winning presidential campaign. The yuan reacted by declining for the first time in three days.

“Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the U.S. doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!” Trump tweeted.

The offshore yuan traded in Hong Kong fell 0.12 percent to 6.8785 per dollar, taking its decline since Trump’s surprise presidential election victory to 1.2 percent. The yuan traded in Shanghai, where moved are limited to 2 percent on either side of a daily central bank reference rate, rose 0.1 percent. Trump has threatened to brand China a currency manipulator and slap 45 percent tariffs on the nation’s exports.

“Some might see the U.S. drawing a line for the yuan at 7 against the dollar as the U.S. begins what will likely be a protracted and multi-year negotiation process,” said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Hong Kong. “But if the Chinese economy is still slowing, others will conclude the yuan has to weaken beyond 7 eventually. In the end, we think fundamentals will win.”

Over the weekend, China complained to the U.S. after Trump flouted almost four decades of diplomatic protocol by directly speaking with the leader of Taiwan, which Beijing considers a rogue province. China urged U.S. authorities to adhere to the so-called one-China principle and “prudently” handle issues related to the self-governed island.

The relatively measured response suggests China wants to keep the incident from escalating into a full-blown crisis. The U.S. broke diplomatic ties with Taiwan and officially recognized the Communist government in Beijing in 1979. Still, it has maintained a close relationship with the democratically run island and is legally required to provide military support and protection.

For a look at the implications of Trump’s phone conversation, click here

If Trump challenges the basis of the One-China policy “at the same time that he places pressure on China over trade, we could be heading for a very rough road,” said Malcolm Davis, a senior analyst at the Australian Strategic Policy Institute in Canberra.

Trump’s retort was consistent with what one of his allies, former U.S. House Speaker Newt Gingrich, signaled earlier on Sunday. Beijing does not dictate who the president of the United States speaks to, Gingrich said on Fox News Channel’s Sunday Morning Futures program,

Taiwan-related issues are the most important and sensitive part of China-U.S. relations, Chinese Foreign Ministry spokesman Lu Kang said at a briefing in Beijing on Monday, adding that the “One-China” principle is the basis for any diplomatic relations.

“Economic relations between China and the U.S. have been mutually beneficial,” said Lu. “To sustain such momentum, the two sides need to remain committed to the important principles that led to the establishment of our diplomatic ties.”

The U.S. president-elect’s comments may have a limited impact on the People’s Bank of China’s currency policy, according to Westpac Banking Corp.

“In time, Trump may realize the limits of the powers of the White House in foreign-exchange markets,” said Sean Callow, a Sydney-based senior strategist at Westpac. “China’s currency policy is up to China, just as the U.S. pursues its own interests. The debate is moving on from the formal label of currency manipulation to which unilateral trade sanctions will be imposed next year, and the reference to the South China Sea adds to the geopolitical risk premium."