Manipulating supply chains in a trade tax world

Posted by: Paul Donovan

14 Jan 2020
  • China is not a currency manipulator. True, it has been trying to stop the renminbi from weakening; the US Treasury does not mind that. Ireland, Italy and Germany are all on a list of possible manipulators, but France is not. It is like calling California a currency manipulator, but letting Arkansas off the hook.
  • China's December exports were stronger than expected, producing a larger trade surplus than expected. Exports to the US still fell. Does this mean China is selling less to the US? Not always. China could divert components to Canada. If Canadian rather than US firms manufacture the final product, a maple leaf can be put on the side of the box and President Trump's trade tax will not know any difference.
  • US consumer price inflation is unlikely to show the effect of the past trade taxes. The taxes have been paid by US companies for the most part, with profits rather than consumers bearing the burden. China does not pay to the US Treasury of course. This is an American tax, paid by Americans.
  • There are a couple of central bank speakers on the agenda, but central bank policy-making has lost the excitement of uncertainty for the time being.

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