China allowed its yuan to sink Monday and U.S. President Donald Trump said the two sides will talk "very seriously" about a war over trade and technology following tit-for-tat tariff hikes and Trump's threat to order American companies to stop doing business with China.
The escalations prompted warnings that the chances of a settlement of the fight that threatens to tip the global economy into recession were disappearing.
But at a conference in France, Trump said serious negotiations would begin.
"We are going to start talking very seriously," Trump said at the meeting of the Group of Seven major economies in Biarritz. He said the Chinese "mean business."
The yuan declined to 7.1468 to the dollar, a relatively modest change from Friday's low point of 7.0927 but its weakest rate since January 2008. The yuan has lost 6.5% from this year's high on Feb. 28.
Chinese leaders have promised to avoid "competitive devaluation" to hold down export prices in the face of Trump's tariff hikes. But regulators are trying to make the state-set exchange rate more market oriented. That allows investor jitters about the tariff war to push the yuan lower.
Trump announced more tariff increases Friday on Chinese goods and said he was ordering American companies to stop dealing with China. He said later he was threatening to use emergency powers under a 1977 law that targets rogue regimes, terrorists and drug traffickers.
That came after Beijing announced tariff hikes on $75 billion of American imports in retaliation for earlier U.S. increases.
"This tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become," Louis Kuijs of Oxford Economics said in a report.
Chinese have hardened their position, especially after Trump imposed curbs in May on technology sales to telecom equipment giant Huawei, China's first global tech brand.
"It does not appear likely they will yield in the face of more economic pressure," UBS economists Tao Wang, Ning Zhang and Jennifer Zhong said in a report.
A weaker yuan would help Chinese exporters cope with U.S. hikes tariffs. But it also would hurt China by making it costlier for real estate developers and others to repay billions of dollars in foreign debt.
Trump said Friday he would raise planned tariffs on $300 billion of Chinese goods from 10% to 15%. The U.S. Trade Representative said tariffs already imposed on another $250 billion in Chinese imports would rise from 25% to 30% on Oct. 1 following a public comment period.
That was in response to Beijing's announcement of tariff increases on $75 billion of American imports. The government said it also would go ahead with penalties on imports of U.S.-made autos and auto parts that were announced last year but suspended while the two sides negotiated.
The Chinese government said those increases would take effect in two batches on Sept. 1 and Dec. 15. That matches the timeline for Trump's plan to extend tariff hikes to $300 billion of Chinese imports.
The latest U.S. tariff hikes are "based on irrational arrogance and enthusiasm," the Communist Party newspaper People's Daily said Sunday.
Chinese government spokespeople have appealed to Washington to reach a compromise to end the dispute. Trump has warned that Americans might need to endure economic pain to get long-term results.
Negotiators met last month in Shanghai and are due to meet next month in Washington. But they have given no sign of progress.
The two sides are deadlocked over how to enforce any deal. China insists Trump's punitive tariffs must be lifted as soon as a deal takes effect. Washington says at least some must stay to make sure Beijing keeps any promises it makes.
Chinese exporters have been battered by a plunge in sales to the United States, their biggest and richest foreign market. But Communist leaders are resisting pressure to roll back plans for government-led creation of global competitors in robotics and other technologies.
Europe and Japan echo U.S. complaints that Beijing's industrial plans violate its market-opening commitments and are based on stealing or pressuring companies to hand over technology. Some American officials worry they might erode U.S. industrial leadership.
The weakness of the yuan, also known as the renminbi, or "people's money," is among U.S. grievances against Beijing. American officials complain a weak yuan gives Chinese exporters an unfair price edge in foreign markets and helps swell the massive U.S. trade deficit with China.
China's central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency — or order commercial banks to do so — to dampen price movements.
The People's Bank of China allowed the yuan to fall past the politically sensitive level of seven to the dollar early this month. Previously, economists had expected the central bank to put a floor under the currency at that level to avoid spooking financial markets.