CNY fell to its lowest level against the USD since 2008, reaching 6.9641 on news that America is preparing new tariffs on all remaining Chinese imports, if talks on 30 November between US President Trump and China’s President Xi Jinping fail. The new round of USD 257 billion in tariffs could come into effect as early as December.
Still, China has the fiscal and monetary firepower to support demand while remaining on track for rebalancing. And Trump could be over playing his hand. China’s USD surplus is ‘recycled’ into US treasuries, which allows Trump to run budget deficits with only marginal effects on interest rates. Removing China’s surplus would cause funding cost to rise. Markets continue to punish China in the US-China trade dispute. While US asset have been only marginally weak, Chinese assets have been abandoned. Trump is still pitching that a “great deal” is possible with China. His meeting with President Xi should result into a reduction of US-China trade war tensions.
By Peter Rosenstreich
