US-China trade update

Reasoning suggests China will not use US treasuries or the RMB as trade weapons.

Trade tensions between the US and China have risen sharply but we believe the situation would need to escalate much further before China resorts to the extreme weapons of currency devaluation and/or selling down its US Treasuries.

The fundamental reason for this argument is that such strategies do not serve China’s own interests. On the contrary, they could cause severe damage to the Chinese economy.

Should markets amplify that fear and price-in some of that worst-case scenario, it would probably coincide with an extremely weak context in local Asian currencies against the US dollar.

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