China Gunning For Meaningful Tariff Relief In Exchange For Deal, Yuan Surges Past 7

China Gunning For Meaningful Tariff Relief In Exchange For Deal, Yuan Surges Past 7

On Monday evening, the Financial Times said the Trump administration is considering lifting some tariffs in order to cement the “Phase One” trade deal at the heart of recent market optimism.

For their part, China appears to be all but insisting on it.

The removal of US tariffs is a “necessary condition” for a trade deal, a blog post from Taoran Notes (essentially an offshoot of the state-run Economic Daily) reads. That is a “core concern” of Beijing’s and it’s been conveyed in recent negotiations. Any misstep there could cause a “setback” for the trade talks, the blog reads.

Read more: Market In ‘Sweet Spot’ As Trump Said To Consider Removing Some Tariffs Just As Stocks Hit Highs

Global Times editor Hu Xijin chimed in on Tuesday as well.

“Some media reports are illogical. My understanding is that for reaching phase 1 deal, the two sides must proportionally [and] simultaneously remove the additional tariffs imposed since the trade war”, he said, in a tweet citing the Financial Times piece. “New tariff threats [are] not a bargaining chip”.

That would appear to suggest China is looking for more than just a lifting of the duties put in place on September 1 (and a likely concurrent agreement from Trump to take the planned December escalation off the table).

It’s worth noting that in addition to Trump’s general belligerence, it’s possible the US could be reluctant to remove the tariffs because “America has been capturing welfare from other nations in recent quarters without suffering much pain in the process”, to quote a recent note from BofA’s Francisco Blanch.

“The US has picked up a larger piece of a shrinking pie on its path towards this ‘optimal tariff’ structure, but we think the real reason behind America’s perceived ‘immunity’ to trade tensions is that the majority of US tariff hikes have focused on China so far”, he writes, adding that “because retaliatory tariffs on US goods have been limited, due to a very imbalanced trade relationship, and ineffective, due to a focus on commodities, the American economy still grew by ~2.0% YoY in 3Q19”.


In any event, the yuan strengthened past 7 for the first time since August, when the PBoC allowed the offshore yuan to push through the key psychological level following Trump’s August 1 escalation.

It’s doubtful China will countenance that for much longer given the deleterious effect of a stronger yuan on the flagging economy.

The daily fix has been set weaker-than-expected for four straight days and Tuesday’s MLF cut also suggests more easing may be on the way, if only in gradual, piecemeal fashion.


Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.