Reuters published a piece on China is allowing the yuan to weaken next year to address higher tariffs from the incoming Trump administration.
The article is gated, but this snippet from HSBC sounds warning bells.
- Currency adjustments are on the table as a tool to be used to mitigate the effects of tariffs.
- It's tempting to think that Chinese currency weakness could fully offset the tariffs in the U.S. and kind of neutralise the impact on the economy. But I think that would be short-sighted.
- The Chinese leadership is likely also to be mindful about the impact of a weaker Chinese currency on other trading partners.
- If China takes the currency aggressively lower, it raises the risk of a tariff cascade ... so I think there is a bit of a risk here that if China uses its currency angle too aggressively, it could lead to a backlash among other trading partners and that's not in the interest of China.
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Earlier re China/tariffs/Trump/Xi:
USD/CNY weekly candles ... yuan is not strong on this time frame.
