Offshore yuan drops most in a week after Trump says tariffs on another US$200b of Chinese exports in pipeline
The offshore yuan fell by the most in over a week on Wednesday, after US President Donald Trump raised the stakes in the ongoing trade war with China, saying he would impose tariffs on another US$200 billion worth of Chinese exports.
Washington’s decision to impose the extra tariffs came after efforts to negotiate a solution to the trade dispute failed, senior US administration officials said on Tuesday.
Trump released a wide-ranging list of Chinese goods the US proposes be hit with the new tariffs, including hundreds of food products, tobacco, coal, chemicals, tyres, dog and cat food, consumer electronics and television components. The list has not been finalised, with the consultation ending on August 30 and the tariffs expected to go into effect in September.
Both countries fired their first salvoes in the trade war last Friday, imposing tariffs on US$34 billion worth of goods. The latest moves by Trump added to expectations that the US-China trade tensions were likely to escalate ahead of US midterm elections in November.
The offshore yuan, which is traded outside mainland China, was changing hands at 6.6946 per US dollar, falling 0.66 per cent by 5.40pm on Wednesday. It is set for its biggest daily drop in over a week and is fast approaching the 11-month low of 6.7332 hit last Tuesday. The onshore yuan was down by 0.59 per cent to 6.6730 against the dollar.
“With China importing [goods worth] only US$162 billion from the US in the 12 months ending May, markets will be anxiously awaiting China’s response,” said DBS Bank strategist Duncan Tan.
Analysts suggested China could move beyond targeting imports of US goods. Other retaliation could include targeting high-end US services in law and accounting.
Iris Pang, Economist for Greater China at ING Bank, said China could also limit tourist visits to the US, which brought in business worth US$115 billion in 2017.
Comments from the People’s Bank of China last week suggested it would avoid using the yuan as a weapon in the trade conflict with the US.
Reports of suspected intervention, with some major Chinese banks selling the US dollar when the yuan slid past 6.70 per US dollar, also fuelled speculation the PBOC would probably draw a line in the sand to defend the currency at that level.
Last month, the yuan lost 3.28 per cent of its value against the US dollar, marking its biggest monthly decline since 1994, when China pegged the currency to the US dollar.