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Bracing for more trade-war turmoil, 3 countries cut interest rates unexpectedly

NEW YORK — Central banks in India, Thailand, and New Zealand moved to shore up their economies Wednesday amid fears that global growth will become the biggest casualty in the spiraling trade war between the United States and China.

Monetary authorities in all three countries cut interest rates in a series of unexpected decisions that shook currency markets just two days after China allowed the yuan to weaken, a move that prompted President Trump to label Beijing a currency manipulator.

China’s currency has steadied in the days since it crossed a critical threshold Monday, but the world’s markets are still uneasy. On Wednesday, stocks on Wall Street tumbled at the open, losing more than 1.5 percent. The rate cuts signaled that more countries are bracing for tougher weeks and months ahead.

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“This is a defensive action by countries seeking to protect themselves from the collateral damage of rising global trade tensions, amid weakening domestic growth,” said Eswar Prasad, former head of the International Monetary Fund’s China division.

On Wednesday:

■  The Reserve Bank of India cut its benchmark rate by 0.35 percentage point, instead of an expected quarter-point cut. It was the bank’s fourth rate cut this year as the government battles a punishing economic slowdown.

■  New Zealand’s central bank cut its rate by half a percentage point in a move that was interpreted as a defensive effort to cushion a sluggish export-oriented economy.

■  Thailand’s central bank cut its rate by a quarter percentage point, its first rate reduction since 2015. Thailand is a big exporter to China and the United States, and a weaker Thai currency will help keep it competitive in the face of a weaker Chinese currency.

The moves come at a time when the global economy is at a crossroads: Last year, every major economy finally appeared to be growing in unison, a decade after the ravages of a global financial crisis. That growth is now increasingly threatened by the bruising trade war between the world’s two biggest economies.

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China’s currency move, in particular, could have a profound impact on global finances. If Beijing continues to allow its currency to weaken against the US dollar, more countries could feel forced to respond, leading to a damaging currency war that could revive inflation and further fray the bonds of global trade.

Investors’ worries that Australia’s central bank may be next to act sent the Australian dollar sliding to its lowest level against the US dollar in a decade.

“These moves signal the possibility of the trade wars morphing into a broad currency war that involves not just the main participants in the trade disputes but also countries that are on the sidelines but exposed to the fallout,” Prasad said.

The rate reductions in India and New Zealand were larger than expected, and Thailand’s cut surprised many economists. Caught off guard, investors sold the currencies of all three countries, weakening their value against the dollar.

Last week, the US Federal Reserve cut its benchmark interest rate for the first time in a decade in a precautionary move that may have also helped prompt other central banks to consider rate cuts.

Last week, only days after American and Chinese negotiators met in Shanghai for fresh talks and agreed to meet again in September, Trump threatened tariffs of 10 percent on some $300 billion worth of additional Chinese goods.

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“These new tariffs raise recession risks for the US sometime next year due to increased uncertainty, an unwillingness to invest in such an environment, and ultimately an unwillingness to hire,” said Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics. “International trade will slow further and is at risk of an outright decline.”

“It is a new world,” he said.