Rising US tariffs to test China’s exchange rate policy

With US tariffs now escalating, the key question is whether the People’s Bank (PBOC) will allow the exchange rate to adjust in response. We think it ultimately will, just as it did during the first trade war. But if we’re wrong and the PBOC attempts to keep the renminbi stable against the US dollar, then it risks amplifying rather than dampening the damage from tariffs.

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