U.S. President Donald Trump on Tuesday dismissed concerns over a protracted trade war with China, as Beijing warned that Washington's decision to label it a currency manipulator would lead to chaos in financial markets. Trump, who announced last week he would slap a 10% tariff on a further $300 billion in Chinese imports starting Sept. 1, said investment was pouring into the U.S. economy. He also pledged to stand with American farmers in the face of Chinese retaliation. China has halted U.S. agricultural purchases and raised the specter of additional tariffs on U.S. farm products. While Trump played down the prospects of the trade dispute being drawn out, St. Louis Federal Reserve Bank President James Bullard said the U.S. central bank may be stuck with a volatile global trade environment for years. "I think of trade regime uncertainty as simply being high in the current environment," Bullard said in a presentation on the U.S. economy and monetary policy before a National Economists Club luncheon. "I do not expect this uncertainty to dissipate in the quarters and years ahead." Ratcheting up the pressure on China, the U.S. Treasury Department said on Monday it had determined for the first time since 1994 that Beijing was manipulating its currency. The move followed China's decision to let the yuan fall below the key seven-per-dollar level for the first time in more than a decade, rattling financial markets and dimming hopes for an end to a trade war that has dragged into a second year. Wall Street notched its worst day of 2019 on Monday. In early afternoon trading on Tuesday, the markets were making a subdued rebound. The S&P 500 index was up 0.7% after falling 3% on Monday, as investors digested moves by China and the United States related to currencies amid their trade dispute. The yuan strengthened. London's FTSE 100 closed sharply lower, its sixth straight session in the red, bringing its losses to more than 5% since Trump announced the additional import tariffs on Chinese goods. China's central bank said on Tuesday that Washington's currency move would "severely damage international financial order and cause chaos in financial markets," while preventing a global economic recovery. China "has not used and will not use the exchange rate as a tool to deal with trade disputes," the People's Bank of China (PBOC) said in the country's first official response to the latest U.S. salvo. "China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path," it said. The Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for further talks in September, Larry Kudlow, director of the White House National Economic Council, told CNBC on Tuesday. Kudlow said movement toward an agreement could change the outlook for U.S. tariffs, adding, "It takes two to tango." He added that the U.S. economy was still in good shape and said he saw no signs of a global recession on the horizon despite growing concerns the U.S.-China standoff is slowing manufacturing activity around the world. "The U.S. economy is very strong. The rest of the world is not. We're the engine that makes it go. Frankly, I see no signs," Kudlow said, when asked about the prospect of a global recession. "The economic burden is falling vastly more on them (China) than us." Kudlow said Washington was forced to make the currency designation given a 10% drop in China's currency since April 2018, and said other members of the Group of Seven (G7) industrialized countries supported the action. "At some point in time, if they are violating our laws, WTO (World Trade Organization) laws and, frankly, G20 laws of currency stability ... we have to take the action," he said. "They brought it on themselves." VENTING ANGER The U.S.-China dispute has already spread beyond tit-for-tat import tariffs to other areas such as technology, and analysts caution retaliation could widen in scope and severity, weighing further on business confidence and global economic growth. The U.S. currency action has driven an even bigger wedge between the two countries. Global Times, a Chinese tabloid published by the ruling Communist Party's People's Daily, said the United States had taken the action purely out of a political motive to "vent its anger." China "no longer expects goodwill from the United States", Hu Xijin, the newspaper's editor-in-chief, tweeted on Tuesday. The United States sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant trade surplus with the United States, and persistent one-way intervention in foreign exchange markets. Less than three weeks ago, the International Monetary Fund (IMF) said the yuan's value was in line with China's economic fundamentals. NEXT FRONT Chinese state media had warned that Beijing could use its dominant position as a rare earths exporter to the United States as leverage in the trade dispute. The materials are used in everything from iPhones to military equipment. Shares in some of China's rare earth-related firms surged on Tuesday amid speculation the sector could be the next front in the trade war. Beijing could also step up pressure on U.S. companies operating in China, analysts say. In June, China issued a travel advisory warning Chinese tourists about the risks of travelling to the United States, citing concerns about gun violence, robberies and thefts. Air China said on Tuesday it was suspending its flights on the Beijing-Honolulu route starting on Aug. 27, following a review of its network. In a further sign of deteriorating ties, China's commerce ministry announced overnight that its companies had stopped buying U.S. agricultural products in retaliation against Washington's latest tariff threat. Chinese monetary authorities let the yuan fall past the closely watched 7 level on Monday so that markets could factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday. The yuan has tumbled as much as 2.7% against the dollar over the past three days to 11-year lows in the wake of Trump's announcement of the new tariffs. But it steadied on Tuesday as China's central bank took steps to contain the slide. The offshore yuan fell to a record low of 7.1397 per dollar on Tuesday before clawing back losses after the central bank said it was selling yuan-denominated bills in Hong Kong, a move seen as curtailing short-selling of the currency. Onshore yuan also opened weaker before steadying, but remained below the 7 level. While the central bank set a slightly firmer-than-expected morning benchmark rate, it was still the weakest since May 2008.
