Westpac analysts point out that the past month has seen a decisive turn in US/China trade relations after President Trump imposed a 10% tariff on the remaining $300bn of Chinese imports to the US and China retaliated by allowing the Renminbi to move above USD/CNY7 while also instructing State–owned Enterprises (SoE’s) to halt purchases of US agricultural goods.
“The US subsequently labelling China as a ‘currency manipulator’ further soured the relationship, making a return to fruitful negotiations unlikely for the foreseeable future.”
“For China’s economy, the impact of trade tensions until now has been manageable. While manufacturing activity has contracted through 2019 (the headline PMI averaging 49.7 over the period), GDP has continued to run within authorities’ 6.0–6.5% target range. That this result was possible, even as growth in fixed asset investment remained historically weak, highlights the underlying strength of China’s economy. That said, if the latest escalation is sustained, then the capacity of their economy to grow at or above 6.0% will be challenged into 2020.”
“The significance of the latest tariff imposed by the US is not the 10% rate chosen, that it might increase to 25% or above, or indeed the breadth of the tariff across circa $300bn of Chinese exports. Instead, the prime issue is that repeated escalation of tensions points to open–ended conflict.”
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