China central bank has Trump headache amid US policy flux
As if defusing the world’s biggest debt bomb while keeping economic growth humming wasn’t tough enough, Donald Trump’s shock election victory has just made the policy outlook even more complex for People’s Bank of China governor Zhou Xiaochuan.
The president-elect’s threats to slap tariffs of up to 45 per cent on Chinese imports cast a shadow over the economy’s stabilisation and the world’s most crucial trade relationship. Protectionism may fuel more international use of the yuan, according to Standard Chartered, while the UBS Group says tariffs may push the PBOC to let the yuan fall further.
It’s hard to tell what would be actual policies instead of just campaign rhetoric
Longer-term ambitions like capital account opening and yuan internationalisation are also clouded, hinging on whether president Trump delivers on candidate Trump’s promises.
The PBOC’s monetary policy becomes trickier, and harder to keep neutral, amid “huge uncertainty” about Trump’s impact on China, according to Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “It’s hard to tell what would be actual policies instead of just campaign rhetoric,” Hu wrote in a note.
Even before Trump takes office January 20, there’s reason to think his campaign threats to impose tariffs and label China a currency manipulator may be tempered by the reality of governing. He’s already signalled there may be some watering down of other contentious issues such as building a wall on the Mexican border and scrapping US President Barack Obama’s health care programme.