Chief Investment Strategist and Chief Economist
August 7, 2019Posted InInvestment Strategy
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China appears to be signaling that its exchange rate can be a primary tool of retaliation.
China on 5 August allowed the yuan to weaken more than 1.5% , the largest one-day move since August 2015. Press reports also said China has asked state-owned companies to suspend imports of US agricultural products in a politically sensitive move. (Beyond the press reports, this hasn't been formally verified with an announcement from China).
These actions and perhaps others to come reflect retaliation China had promised for the increased US tariffs announced last week (The US tariffs at some level cover all Chinese goods exports to the US from September 1. Please see this bulletin for full discussion.)
China appears to be signaling that its exchange rate can be a primary tool of retaliation. US tariff collections now amount to 12% of China's exports to the US, excluding those just announced. The CNY, which is more stable and managed than most other EM currencies, has fallen about 12% since US tariffs on China have been imposed in 2018 thus far (see our Asia Strategy).
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