US: Tax reforms impact on RMB exchange rate – Deutsche Bank

Deutsche Bank’s China economists discuss the relationship between the US tax reform and RMB exchange rate and assess the Trump tax reforms' potential impact on RMB exchange rate.

Key Quotes

“The Trump administration announced its tax reform plan on April 26. The plan proposes to cut the US CIT rate from current 35% to 15%, but does not mention the destination-based cash flow tax (DBCFT), a critical component of House Speaker Paul Ryan's proposal.”

“We find the balanced RMB depreciation, one that minimizes the impact on bilateral USChina trade balance, would be 1.8-6.3%. Alternatively, should the USD-RMB rate stay unchanged following the US tax reforms, the US trade deficits against China would shrink by about USD25 billion (6.9% of the total trade deficits against China in 2015, or around 0.25% of China's GDP in 2016).”