The U.S. dollar has been trading in a narrow range over the past week, as public attention was diverted to stock market volatility.
Meanwhile, the Chinese Yuan (CNY) quietly touched a 10-year low. China's GDP growth rate has slowed down to its lowest pace in a decade and its stock market continues to slide. While Chinese officials are saying they will not use currencies as a weapon in the trade wars, there are few signs that China is blocking the further slide of the CNY.
Take a look at the dollar-to-yuan exchange rate since April, when trade wars heated up:
The intensified trade tensions between the U.S. and China have invited various opinions about whether the conflict is helping or hurting the United States.
In the short-run, the 10 percent tariffs on $200 billion of Chinese imports imposed in September have directly resulted in higher import prices and a risk of inflation for U.S. consumers.
Additionally, given the prolonged uncertainty of trade talks, American corporations have recently announced that they will seek to use supply chains outside of China. This certainly presents more potential disruption to the U.S. economy, as it will take years to establish solid relationships with new supply chain partners.
China's strategy has been to use the American corporate criticism of the trade wars to cause division between the U.S. business community and the White House, hoping that they may water down some of President Trump's most austere trade policies.
Keep in mind, however, that globalism and free trade only work if two countries are trading on a level playing field, and there is a conception that China is not playing fair. We are now starting to see voices from other parts of the world amplify this concern, as both Germany and Brazil have recently complained about certain Chinese practices. The new United States-Mexico-Canada agreement also shows that Mexico and Canada are on board with the concept of free and fair trade.
Attempts to rectify U.S.-China trade imbalances may cause short-term pains, but there will certainly be long-term gains for the US economy.
Our View: The perception of unfair Chinese trade practices may of course be prompted by misunderstandings. Perhaps China could change its image by doing a better job in advocating and executing cases that improper and unfair practices in China have been rightfully and severely punished.
Meanwhile, on the U.S. side, it is important that we project a unified and coherent message from the White House and the business community about the need for fairer trade, which will improve our collective negotiating strength.
Ultimately, the Chinese economy still needs foreign capital inflows, which currently are continuing to deteriorate. It seems this trend of gradual CNY weakness may continue for the next couple of months.
If we can help you with any Foreign Exchange needs, please email email@example.com or call (800) 447 4133.
|The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.|