- China left time to negotiate with the US before real harm is caused by tariffs and investigations.
- The US-China trade war could initially lead to three outcomes, impacting the US Dollar and the Chinese Yuan in different ways.
- A review of China’s stance on trade and top controversial issues will help to evaluate these scenarios.
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CHINA’S CURRENT MOVES AND IMPLICATIONS
A Tariffs Plan on $3 Billion US Products
US products in this list are those that need China as an important market, but not vital; this includes fruits, dried fruit, nuts and nuts products, wine, modified ethanol, American ginseng, and seamless steel pipes. This is the immediate reaction China took in response to Trump’s announcement of a plan to impose tariffs on $60 billion Chinese goods. China’s responsive plan will allow the US feel pain in reciprocation but not cause catastrophic damage (e.g. a tariff on soybeans).
Anti-dumping Investigation on Phenol
China launched an investigation into phenol imports from the US, EU, South Korea, Japan and Thailand, so this is a move not only targeted at the US. Additionally, this investigation is expected to last for a year; the period can be expanded to one and a half year as needed. Thus, it leaves time for the two parties to sit down and have dialogues before more significant damages take effect.
CHINA’S NEXT POSSIBLE MOVES AND IMPACT TO DOLLAR, YUAN:
China’s newly-elected Vice Premier Liu He, who oversees the country’s economic and financial sectors, has led the bilateral dialogues on China’s side. He paid a trip to Washington in early-eMarch for trade issues. On March 24, he exchanged ideas with the US Treasury Secretary Steven Mnuchin over phone; both committed to continue the dialogue.
There are three possible scenarios over the following periods:
1. A ‘win-win’ scenario: the two parties can find a mutually agreeable way to reduce trade disputes; the impact to both economies could be limited.
USD/CHF has depreciated amid the on-going trade disputes and has broken a range that it held for more than a month. As the US is the one that wants to gain more access to its partner’s market, trade disputes could hurt the US more than China; this could have been a major contributor to Yuan’s recent gains, in addition to the launch of Yuan-denominated oil futures.
If the cloud of uncertainty surrounding trade is lifted, the Yuan’s advance may slow, as it is already at a relatively high level. Under China’s current