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China Says 'Ready to Fight' in the Trade War on Eve of US Tariff Hit

China Says 'Ready to Fight' in the Trade War on Eve of US Tariff Hit

Renee Mu, Currency Analyst

China to Fight Against US Tariffs - Talking Points:

  • China sees the US Tariffs, effective on Friday, to be “the first shot” of the trade war.
  • Chinese tariffs on $34 billion US goods will be a fight back; more tit-for-tat hits are expected.
  • The Banking and Security regulator expressed confidence in the Yuan and Chinese equities.

Multiple Chinese state agencies stated China’s stance on the US-China trade war, as the US Tariffs on $34 billion Chinese products will kick in within 24 hours. These reports have dominated the headlines of almost all Chinese media on Thursday. Here are what they said:

China’s Commerce Ministry:

"China will not bow down to the United States’ threats and blackmail, nor falter from its determination to defend global free trade and the multilateral system.” This is a respond to US President Trump’s threat that if China hits back with tariffs on US goods, the US will impose duties on additional $200 billion Chinese products.

The spokesman also pointed that US tariffs may not only hurt China. “Among the $34 billion Chinese goods, roughly 59% are produced by foreign-invested firms; American firms account for a considerable proportion.”

There is a shifting tone on how China views the on-going conflicts with the US. The spokesman called the US tariffs effective on Friday “the first shot” of the “trade war”. In the past, despite of the escalating disputes, China tried to avoid calling it a war, rather to use terms like conflicts or disputes.

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China’s Foreign Affairs Ministry:

China “has the right to protect its own interests, and there is no doubt on that.” It is expected that China will impose tariffs on the same amount of US products Friday, shortly after the US tariffs take effect. Also, the country is expected to continue the tit-for-tat strategy if the US launches more tariff attacks.

China Banking and Insurance Regulator:

The Chairman Guo Shuqing said that “the Chinese economy has a relatively strong tolerance” to trade disputes. “It has transformed from heavily relying on investment and exports, to being driven largely by consumption.”

Regarding the Chinese Yuan, he mentioned that “a large depreciation is not possible due to the economic fundamentals.” In terms of Chinese equities, he said that “the listed companies have improved profitability. In the first half of 2018, net capitals flowing into the Chinese stock market were 131.3 billion yuan.”

Guo is also the Party leader in the PBOC. He is the sixth officials from China’s Central Bank that commented on the Chinese Yuan and equities this week. Find out what the other five officials said, including the PBOC Governor.

The Chinese Yuan and Equities Prices

The Yuan resumed losses against the U.S. Dollar on Thursday after a pullback on Wednesday; the USD/CNH did not break above the previous swing high (low for the Yuan). On the same day, Chinese stocks continued to drop. In specific, Shenzhen Component Index set a three-and-half year low. Both the Yuan and equities may remain vulnerable on the outlook of more trade battles.

A Review:US-China Trade War: An Inevitable Conflict and The Impact on Equities, FX

-- Written by Renee Mu, Currency Analyst with DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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