USD/CNY Broke 7, Rare Earth Is Next Battlefield of Sino-US Trade War

Rare earth is the next battlefield of Sino-US trade war and USD/CNY broke through 7 recently. The US President President Trump did not agree on Tuesday that China and the US would fall into a protracted trade war, although Beijing warned Washington’s decision to list China as a currency manipulator would trigger financial market chaos.

Trump announced last week that he will impose a 10% tariff on another $300 billion of Chinese exports to the US from September 1. In the face of China’s revenge, he also promised to support American farmers. China has stopped purchasing US agricultural products and has raised concerns about tariffs on US agricultural products.

American peasants are Trump's main political supporters, and they are one of the worst-hit groups in the trade war. As the largest agricultural product exported by the US, soybean exports to China fell to the lowest level in 2018, and it is also the lowest level in the past 16 years.

Although Trump has played down the possibility of long-standing trade disputes, Brad, the president of St. Louis Federal Reserve Board (Fed) said that the US Fed may not be able to shake off the turbulent global trading environment in the next few years.

The Sino-US trade war has now entered its second year. For the first time in more than 10 years, the exchange rate USD/CNY broke 7. This caused an uproar in the financial market and made the hope of ending the trade war awkward.

The dispute between US and China has expanded from tit-for-tat import tariffs to other areas such as technology. Analysts have warned that the scope of retaliation may expand and the severity may increase, and further suppressing corporate confidence and global economic growth.

Analysts pointed out that Beijing may also increase its efforts to pressure US companies operating in China.

In June, China issued a travel proposal to the US to warn Chinese tourists of the risks of gun violence, robbery, and theft. Air China (601111.SS) said on Tuesday that it will stop operating the Beijing-Hawaii-Beijing route from August 27, 2019, due to network layout and capacity arrangements.

Ministry of Commerce of the People’s Republic of China announced earlier that the relevant companies have suspended purchasing US agricultural products in retaliation for the latest tariff threats in Washington, which is a sign of further deterioration of relations between the two countries.

Since the outbreak of the trade war last year, the Trump administration has provided US farmers with up to $28 billion in federal aid, and the US Department of Agriculture has so far distributed $8.6 billion in direct aid to farmers.

In the next battlefield, Chinese state media have warned that Beijing may use its position as a leading exporter of rare earth in the US as an important bargaining chip in the trade war between the two countries. Rare earth is widely used in various products ranging from iPhones to military equipment.

USD/CNY broke 7 indicates trade war tends to be protracted, on Tuesday, the share prices of some rare earth-related companies in China soared as the market speculated that the rare earth industry could become the next battleground for Sino-US trade war.

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