USD/CNY: Gradual downside seen with tariff shifts – MUFG

Michael Wan at MUFG argues that changes in US tariff implementation and a weaker Dollar backdrop support a gradual move lower in USD/CNY. China is seen as a relative beneficiary versus some Asian exporters as effective tariffs on Chinese exports are expected to fall. This narrows tariff differentials and reduces incentives to re-route exports via other Asia economies.

China seen as relative tariff beneficiary

"Third, countries which were beneficiaries and who have trade deals have come out slightly worse off in the interim, while those such as China and Brazil which have not finalized full trade deals have come out much better."

"Meanwhile, the likes of Brazil and China will likely see effective tariffs cut by around 7% to 16% over the next few months, based on analysis by Global Trade Alert, and as such they come up as relative beneficiaries."

"From a relative export competitiveness perspective, this also means that the tariff differential between other Asia exporters versus China has been narrowed in the interim, and reduces the incentive to re-route exports to the US at the margin."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)