-- SOURCE: 07-19-18 - "China "Shocked Beyond Imagination" At Larry Kudlow's "Bogus" Accusations" --

While China has so far failed to list explicitly just how it will respond to Trump's proposed tariffs on $200BN in additional Chinese imports, it has been quite clear that it is happy to go from trade war to currency war with its ongoing devaluation of the Yuan, which overnight lost another 550 pips, sliding to 6.80 against the dollar, the lowest level since July 2017.

And a big reason for that are Wednesday comments by Larry Kudlow, Trump's chief economic advisor, who blamed President Xi Jinping for stalled trade talks when he told CNBC that he believed lower-ranking Chinese officials want a deal, including Xi’s senior economic adviser Liu He, but that Xi has refused to make changes to China’s technology transfer and other trade policies, accusing Xi of "holding the game up.”

“I think Liu He and others would like to move but haven’t,” he said at CNBC's Delivering Alpha conference. “We are waiting for him (Xi). The ball is in his court." Kudlow also said that China could end U.S. tariffs “this afternoon by providing a more satisfactory approach” and taking steps that other countries are also calling for.

Asked about Kudlow’s comments, China’s foreign ministry spokeswoman Hua Chunying said: "That the relevant United States official unexpectedly distorted the facts and made bogus accusations is shocking and beyond imagination."

And in the latest escalation in the war of words, Hua told a regular briefing that "the United States’ flip-flopping and promise-breaking is recognized globally."

China has made the utmost efforts to avoid an escalation of trade frictions, Hua said, reiterating that China does not want a trade war but is not afraid of one.

And yet, China’s other trading partners including the European Union, while not supporting tariffs, have also criticized Beijing’s trade policies, and have implicitly supported the substance of Trump's complaints and actions against China, if not the delivery.

Meanwhile, China has repeatedly blamed Washington for the trade conflict, with the foreign ministry calling it the biggest “confidence killer” for the global economy, and vowing to fight back if the United States continued to be “wilful”.

And while that has been reported extensively, what has gained little attention so far, is any discussion of how Trump will respond when he learns that in retaliation to his escalating tariff (both effected and proposed), China is increasingly turning toward currency devaluation, not only to respond to Washington, but because its economy and credit creation are slowing down so sharply, it has no other choice.

The question, of course, is how Trump will respond when he finally turns his attention from the field of trade war and to the far more novel - to him - arena of currency warfare. And judging by the market's nervousness this morning, increasingly more are starting to ask just this question.