The ball is in China's court: US President Donald Trump has jacked up import tariffs on US$200 billion of Chinese goods to 25 per cent.
If the US imposes 25 per cent tariffs on everything it buys from China, and China retaliates by doing the same, its retaliation will be ineffective in comparison.
Worse, many of those imports from the US, advanced semiconductors for example, are important for China's economic growth, so imposing tariffs on the US would hurt back home.
If China were to try and sell them all at once, the US Federal Reserve would step in and buy them to preserve an orderly market and hold down interest rates; it bought more than that in the few weeks following the 2008 implosion of Lehman Brothers.
If China were to sell the US dollar proceeds of its Treasury bond sales in the foreign exchange market, what would it sell them for? Euros? No chance.
Firstly, a weaker yuan would help to offset the impact of tariffs on China's exporters.
So allowing the yuan to weaken would have the twin benefits of supporting China's exporters and hurting the US administration, possibly enough to achieve a trade deal acceptable to Beijing.
https://www.scmp.com/week-asia/opinion/article/3010619/us-china-trade-war-here-are-beijings-options-and-not-one-looks
If the US imposes 25 per cent tariffs on everything it buys from China, and China retaliates by doing the same, its retaliation will be ineffective in comparison.
Worse, many of those imports from the US, advanced semiconductors for example, are important for China's economic growth, so imposing tariffs on the US would hurt back home.
If China were to try and sell them all at once, the US Federal Reserve would step in and buy them to preserve an orderly market and hold down interest rates; it bought more than that in the few weeks following the 2008 implosion of Lehman Brothers.
If China were to sell the US dollar proceeds of its Treasury bond sales in the foreign exchange market, what would it sell them for? Euros? No chance.
Firstly, a weaker yuan would help to offset the impact of tariffs on China's exporters.
So allowing the yuan to weaken would have the twin benefits of supporting China's exporters and hurting the US administration, possibly enough to achieve a trade deal acceptable to Beijing.
https://www.scmp.com/week-asia/opinion/article/3010619/us-china-trade-war-here-are-beijings-options-and-not-one-looks
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