Trump’s nomination of Bessent to be the next US Treasury Secretary had reined in concerns over US fiscal deficits and tariffs, and tempered USD strength. Bessent’s background as a macro hedge fund manager means that he can speak about the US fiscal position credibly, even with Congress holding the authority in setting budgets. Furthermore, Bessent had publicly said that Trump’s tariff threats are a negotiation tool to push trading partners to lower tariffs on US goods. He believes that tariffs should not be imposed on goods that the US does not make, and that they should be layered in to avoid excessive inflationary impact. These are positions that should avert the worst outcomes for global trade.
Still, Trump’s protectionist tendency and volatile temperament imply that uncertainty for markets will remain, no matter who is Treasury Secretary. Perhaps as a reminder to his base of his protectionist credentials, Trump posted on social media today that he will charge China with an additional 10% tariff over drug inflows, and that he will impose 25% tariffs on all Mexico and Canada goods, purportedly for the influx of people and illegal drugs. Despite Mexico and Canada being signatories to the USMCA trade agreement, markets have still taken fright at Trump’s threat, with MXN and CAD falling by 1.4% and 0.8% respectively. For the RMB, even if tariff threats on Chinese goods are already partially expected and priced, USD/CNH still rose by 0.3% towards 7.27 in the wake of Trump’s fresh posting.
Given Trump’s unpredictability, China could more actively support broad-based stability in the RMB to temper undue volatility. On a trade-weighted basis, the RMB has seen little change since Trump’s election victory. The PBOC is leaning against RMB depreciation expectations by setting a series of strong CNY fixings around 7.19, which are now more than 500 pips away from spot market levels. Given our economists’ assessment that proposed US tariffs to China pose no more than a 1% drag on growth, we believe that any RMB adjustment in response should also be quite small.
Quote of the Day
“I am a tariff man standing on a tariff platform.”
William McKinley
November 26 in history
The Concorde made its final flight in 2003.
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