China Ready for Duel with Trump

China has a serious financial arsenal in a battle with the US administration, as well as government bonds and turns to CNY (the Chinese yuan), but these axes are not free ...

Beijing has promised to respond after Trump has threatened to raise tariffs to 25 percent of imported goods from China worth $ 200 billion. China's answer will not be an increase in customs rates.

"By comparing US dollar-dollar-based tariffs, rising tariffs mean a 25% increase in all import commodities, including those at the expense of China." says Setser.

China is the second largest economy in the world and has some market levers that meet the requirements of war. Here are some of them:

Devalvated Yuan

Beijing may devalue its currency to mitigate the effect of US action on the country's economy by 2018. During the past week, CNY depreciated by 1.3%, but on Friday it rebounded after Bank of China announced its fixed- stronger than expected.

As a result, capitalism in 2015 will be carried out in accordance with Tao Wang - UBS Group:

"China can not repeat its experience with currency promises because it will undermine trust in the old, and will force the US to react immediately." Tao Wang said.

The currency is one of the leading points in the US negotiations, such as the CNY stabilization requirement.

Dumping of bonds

China holds $ 1.1 trillion in US government bonds, more than any other country, and if it wants to get back that debt it will be seriously justified with $ 15.9 trillion. The government bond market spreads before Beijing's reporting date.

"Any sharp movement on the bond market could have a negative effect on the value of government securities and lead to a significant increase in revenues." says Ed Al-Hussainy (Investment in Colombia).

Soya hit

China is the largest buyer in the US and now has 25% of the amount of imports. Most of the river comes from the Midwest, which is Trump's largest constituency, and is of great importance for the fate of the presidency.

Prior to the commencement of the trade negotiations, the US Minister of Agriculture designated February 2009 as a sign of "goodwill" ... probably new ones will not exist.

"As long as you devalue CNY and the dump government bonds look tricky, the denial of them is the closest and safest move." says Setser.

Soybean futures collapsed by 11% on 10.04.2019.

Source: Bloomberg Finance L.P.

Graphs: Used with permission of Bloomberg Finance L.P.

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