US President Donald Trump has put the world on notice that he won't shy away from a major trade war, claiming that the world's largest economy has sat idly by "like a bunch of dummies".
America has watched as China and Japan have cheapened their currencies to get a trade advantage, while his top trade adviser accused Germany of using a "grossly undervalued" euro to "exploit" the United States.
The US dollar slumped to its lowest level in nearly two months as traders decided that Trump's mantra of "Buy American and hire American" is not just populist rhetoric, and that the US president is serious about narrowing the yawning US trade deficit in order to boost US economic growth.
Along with tariffs, a lower currency is a simple and quick way to boost US exports and cut the country's import bill.
Trump ramped up his aggression against Japan and China overnight, arguing they use monetary policy to drive their currencies lower.
"They play the money market, they play the devaluation, while we sit here like a bunch of dummies", he said in a meeting with US drug company bosses.
Last month, Trump said the US dollar was "too strong", reversing two decades of Washington support for a strong currency.
At the same time, Trump's top trade advisor, Peter Navarro launched an extraordinary attack on Germany, accusing the country - which runs a huge trade surplus with the US - of taking advantage of a "grossly undervalued" euro.
Even more alarming for investors, Navrro signalled that the Trump administration is determined to unwind global supply chains - which allow US multinationals to take advantage of low-cost foreign labour - in order to bring jobs back to the US.
"It does the American economy no long-term good to only keep the big box factories where we are assembling 'American' products that are composed primarily of foreign components", he told The Financial Times.
"We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth."
He also dismissed the argument that US consumers will be forced to pay higher prices if global supply chains are dismantled, saying that this claim had been "used for years to put Americans out of work and depress wages by shipping our jobs offshore."
Instead, he said, "we prefer pay cheques to welfare cheques for the American people and a robust middle class with rising wages."
Not surprisingly, growing signs that Trump intends to get tough on trade is alarming major US trading partners.
Bank of Japan chief Haruhiko Kuroda told a Tokyo news conference yesterday that "there are concerns that protectionist measures could cause international to shrink or global economic growth to decelerate.
The Bank of Japan policymakers yesterday decided to stick to their ultra-easy monetary policy - including a negative interest rate on some deposits and targeting a zero yield on Japanese 10 year bonds - which have helped to drive the yen lower and boost Japanese exports.
German Chancellor Angela Merkel, sought to defend Germany from the accusation that it uses an artificially low currency to boost exports, by pointing out that the country could not influence the euro, and that Berlin "supported an independent European Central Bank."
Critics argue that the creation of the euro has been a huge benefit for the extremely competitive German economy, which has doubled its exports to around half of GDP since the common currency was introduced.
But others note that Germany has been very critical of European Central Bank chief Mario Draghi's ultra-easy monetary policies - which include negative interest rates and a massive bond buying program - which have helped push the euro lower.
Meanwhile, Beijing must be hugely worried that it is headed for a confrontation with Washington over China's massive trade surplus with the United States.
Although Beijing can retaliate to any US trade by punishing US multinationals such as Boeing and Apple that are heavily dependent on Chinese sales, this could be a price that Trump is willing to pay.
Chinese President Xi Jinping, however, is anxious to avoid a damaging trade war with the US as he prepares to consolidate his power base at a key Communist Party national congress late this year.
To avoid antagonising Trump, China has spent around $US1 trillion ($1.3 trillion) of its foreign currency reserves and clamped down heavily on capital outflows from the country in an effort to stabilise its currency.
