Donald Trump’s threat to increase China tariffs dashes hopes of keeping yuan exchange rate stable
- The United States wants to limit the yuan’s depreciation to prevent an unfair advantage for Chinese exporters
- Tweet from the US president on Sunday threatens to increase levies on Chinese exports leading yuan to drop by almost 1 per cent to 6.7976 per dollar on Monday
Hopes that China will meet demands by the United States to include a provision to prevent an unfair devaluation in the yuan’s exchange rate is fading rapidly, according to analysts.
A demand from the US to limit the yuan’s depreciation and thus the competitive advantage given to China’s exporters was seen as an acceptable condition for Beijing to end the trade war.
That helped drive a 1.46 per cent appreciation in the yuan against the US dollar this year, the second best performer among Asia’s 11 most traded currencies.
But comments by US President Donald Trump on Sunday that there has been a lack of progress in the trade negotiations dashed hopes that Beijing would fulfil US demands to keep its currency stable at all costs, reversing the yuan’s advance this year.
Hopes that the yuan will be included into a trade deal is slipping away. China will be tempted to use yuan depreciation to counter the tariffs.
“Hopes that the yuan will be included into a trade deal is slipping away. China will be tempted to use yuan depreciation to counter the tariffs,” said Ken Cheung Kin-tai, senior Asia currency strategist at Mizuho Bank.