U.S. President Donald Trump’s efforts to “rebalance” global trade have spooked Wall Street, roiled U.S. Treasury prices and sent investors scrambling for gold. Now, the moves are also rattling usually calm areas of financial markets, with potentially big implications for the future trajectory of the dollar and the global economy.
The Taiwan dollar has risen about 8% against the U.S. dollar since Friday, according to Refinitv data, a big gain in just two trading days, on speculation that Taiwan would have to make trade-related concessions to the White House.
Although things have calmed down now, Monday’s gain was still the biggest one-day percentage gain in about four decades, all the more surprising because Taiwan’s central bank likes to keep things stable and calm, according to Reuters.
The volatility in Taiwan, as well as in neighboring Hong Kong, whose currency markets also tend to steer clear of the public spotlight, suggests that Trump’s trade war is already having far-reaching effects.
Taiwan’s “central bank” governor, Yang Chin-lung, was forced to hold a hastily arranged press conference Monday evening to refute rumors that the Trump administration had demanded that Taiwan increase its yuan against the dollar in exchange for tariff exemptions in ongoing trade talks.
“Stock market commentators are kindly requested not to comment in a speculative manner that could affect the order and stability of Taiwan’s foreign exchange market, or even the real economy,” he said in a statement.
On Sunday, Trump told reporters aboard Air Force One that his administration was in talks with “almost” all countries and that some trade deals “may well” be announced this week.
Taiwanese President Lai Ching-te also spoke on Monday, calling reports of an agreement with the United States on currency policy “fake news.” A stronger yuan would make Taiwanese products more expensive relative to the dollar, making Taiwan’s exports less competitive.
The island is one of the most important nodes in the global technology supply chain as it is home to Taiwan Semiconductor Manufacturing Company, which produces more than 90% of the world’s advanced microchips that power everything from smartphones to artificial intelligence to weapons.
It’s been a “shocking few days” for the Taiwan dollar, said Sean Callow, senior foreign exchange analyst at ITC Markets. He believes the dollar’s “increasingly damaged global reputation should cause it to move lower against most currencies.”
This will make American products cheaper and more competitive overseas, in line with Trump’s grand strategy to restore the dominance of American manufacturing. In this case, Asian economies will have to accept the inevitable appreciation of their currencies against the dollar, and their exports will also suffer.
In Hong Kong, the city’s de facto central bank said in a statement on Tuesday that it had spent 60.5 billion Hong Kong dollars ($7.8 billion) to buy dollars after the Hong Kong dollar once again hit the strong end of the trading range, setting a single-day record, according to Bloomberg.
The former British colony still pegs its currency to the dollar. This system has lasted for nearly four decades and has long been seen as a guarantee of financial stability and prosperity.
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