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China's Patience Might Be Reaching Its Limits

Published 18/03/2018, 09:17

As trade tensions between China and the US intensify, multiple rumours are emerging as to the ways the Chinese government could potentially retaliate. In any case, the outcome is to be a loss for all parties.

Focusing its efforts on implementing trade sanctions in steel, aluminium and on the automotive industry to a certain extent, the US mainly looked up for countries again which trade deficits are highest.

Trade partners such as Germany, Mexico, Japan, and China remain the main targets. Owning its largest trade deficit from China, accounting for USD 375 billion in 2017, or 47% of total US trade deficit (US total trade deficit in 2017: USD -796 billion) and is already reaching USD -36 billion for the only month of January 2018. From China side, exports in the US amount for less than 3% of its GDP.

China And Trade Balance Disparities

Accordingly, the Chinese government remains rather patient for now, but is expected to retaliate fast if further penalties are initiated (e.g. travel visas blockade, restrictions on Chinese-initiated corporate investments in the US). From the Chinese side, multiple countermeasures are deepened and concern the boycott of US soyabeans that would be bought from Brazil instead, the purchase of France-based Airbus (PA:AIR) aeroplanes instead of Boeing (NYSE:BA), reinforcement of barriers for approvals of US companies activities on Chinese soil or US treasuries holding reduction (currently estimated at USD 1.17 trillion), a move that could strongly disorder the global market.

Chinese growth continues its expansion, though industrial overcapacity, corporate and private debt and inflation remain hurdles in the near term. People’s Bank of China new governor will be officially named on March 19th 2018 and is expected to become Liu He, Xi’s current chief economic adviser. USD/CNY is weakening since the beginning of the year, valued at 6.34 (-2.44% YTD) and expected to strengthen along 6.45 in the next two months.

by Vincent Mivelaz

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