China is taking the calm approach to Trump.
China's central bank governor urged investors to "stay calm" Tuesday following a plunge in domestic stocks that sent the country's benchmark index to a two-year low following the latest escalation of the ongoing trade war between Washington and Beijing.
In an unusual public statement after the close of trading Tuesday, Yi Gang, the new head of the People's Bank of China, said the country's economic fundamentals were sound and that he remained confident in the strength of its capital markets. Yi also said China's economy, the world's second-largest was in a good position to cope with the current trade frictions. The comments followed a move by the PBOC to lend 200 billion yuan ($31 billion) to domestic financial firms amid concerns that a trade-related slowdown could dampen system liquidity.
"There are ups and downs in the stock market and so, investors should be calm and rational," Yi said in an interview with the Shanghai Securities Daily that was posted on the PBOC website. "China is in good position to cope with all kinds of trade frictions."
"The PBC always gives high priority to addressing the impact of external shocks," he added. "We will prepare relevant policy tools in a forward-looking manner, use a combination of monetary policy tools, maintain liquidity at an appropriate and stable level, and make sure the structural de-leveraging progresses with the right strength and at the right pace, so as to promote stable and sound economic growth, and hold the bottom line of preventing systemic financial risks."
China's CSI 300 fell 3.55% to a near two-year low of 3,620.05 points Tuesday while the Hang Seng Index in Hong Kong was marked 2.76% lower by the end of the trading session after President Donald Trump threatened to unleash a fresh round of tariffs on $200 billion worth of goods from China in the latest escalation of trade war rhetoric between the world's two biggest economies. The tech-focused Shenzen Composite plunged 5.77% to 1,594.045 points while the Shanghai Composite tumbled 3.8% to 2,907.82 points.
Trump said the 10% levy would apply "after the legal process is complete" if China "refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced", a reference to Beijing's intent to match a list of $50 billion worth of goods now subject to tariffs from Washington. China called Trump's latest salvo "blackmail" and said trade wars would harm "not just the people of China and the U.S. but all over the world."
"Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions," the Ministry said. "The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world."
Last week, a triple-set of economic readings from China that suggest the government's longer-term aim of reducing risky lending practices is starting to take affect, with five-month investment rates falling to a 22-year low of 6.1% and industrial output and retail sales falling much more than anticipated in the month of May.
Yi, a well-respected economist who received a doctorate from the University of Illinois, took over from Zhou Xiaochuan after his 15-year term ended earlier this year, also elected not to follow the Fed's tighten cycle, as it typically does in order to keep the yuan closely pegged to the U.S. dollar, and kept its short-term interest rate unchanged Thursday, suggesting he's also concerned about the overall trajectory of growth in the world's second-largest economy.