RMB: Spectre of more US tariffs – Nomura

Analysts at Nomura point out that Bloomberg has reported (30 October) an unconfirmed plan for further US tariffs on all remaining Chinese imports by early December, if bilateral talks between Presidents Trump and Xi, expected on 29 November, fail (SCMP; 19 October).

Key Quotes

“Such a development would be a surprise for the market, even though President Trump has raised the threat before. Indeed, a significant 40% of Chinese corporates we surveyed recently believe that the US will refrain from raising the current 10% tariff on USD200bn of Chinese imports to 25%.”

“This tough US stance also makes it more difficult for China to compromise as it says it cannot hold talks while the US “holds a knife” to its neck (Bloomberg, 25 September).”

“We believe the intensification of trade protectionism only raises the risk of USD/RMB breaking through 7.0, even though we believe that the People’s Bank of China would engineer a “managed break”. That is, we see a risk that 7.0 will be tested more than once amid relatively high FX volatility to prevent a build-up of speculative short RMB positions.”