US and China to negotiate - BBH

The US confrontation with China is only partly idiosyncratic and it may be a serious misjudgement if China does not recognize that its emergence on the world stage and its trade practices are of widespread concern, suggests the analysis team at BBH.  

Key Quotes

“The Trump Administration's tactics may be off-putting, but the signal and frustration are shared.  It is not simply one of few issues that bring together large elements of both US political parties.  As will likely become more evident in over the next week or so, Germany, France, and Japan share similar misgivings.  That said, a multilateral effort goes against the thrust of the Trump Administration and may require reduced tensions within such a coalition.”

“The US and China are negotiating and the $50 bln in sanctions initially announced for the intellectual property violations do not going into effect until after a 60-day public comment period.  Part of the negotiations are taking place in the public and part in private.  Reports about the private negotiations, which may have stalled following Trump's threat of tariffs on another $100 bln of Chinese goods, saw China willing to take measures to reduce the trade imbalance by $50 bln by importing more liquefied natural gas, agriculture, semiconductors, luxury goods, and to open up the financial sector.”

“If investors took seriously the risk that China would devalue the yuan, what would they do?  We suspect they would sell the yuan, not on the mainland (CNY) where the currency continues to be managed (even if not through intervention).  Rather, they would express their views in the offshore market (CNH).  Today both rose, with CNY edging slightly higher than CNH (0.23% vs. 0.20%).”