China: Retaliation is gentle - ING

Sandeep Kanihama FXStreet Contributor

Iris Pang, economist at ING, suggests that according to their trade research, the retaliation from China is gentle as the increase in tariffs on US$60bn goods varies from 25% to 5%, which is less than half of the 15% (25% - 10%) increase in tariffs on US$200bn goods imposed by the US.

Key Quotes

“We believe that China refrains itself from being the one that escalates the trade war tension. Another reason is that moderate tariffs imply China is willing to continue the trade negotiations.”

“If the US retaliates by imposing 25% tariffs on all remaining Chinese goods (US$339.5bn, using data of US imports from China in 2018) then China might react more aggressively.”

“We always think that yuan depreciation is not the answer to boost exports. If there is a reduction of export orders from tariffs, a small depreciation of the yuan will not help exporters.”

“If the yuan depreciates further (USD/CNY spot 6.8817) in a short period of time it will fuel concerns of capital flight.”

“By the time President Xi and President Trump meet at the G20 summit in June the yuan should stabilise further. We maintain our USD/CNY forecast 6.75 by the end of 2Q19, though we don't rule out increased volatility in this pair in the run up to the G20 meeting.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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