The US-China trade conflict will ratchet up another notch this week as rhetoric transitions to action and the US imposes a 25 per cent tariff on a narrow $US34 ($46) billion worth of imports.
This week in finance:RBA meeting (Tuesday)Retail sales and trade balance (Wednesday)New US tariffs on Chinese goods come into force (Friday)
Standing behind that is the threat targeting another $540 billion worth of goods should China retaliate.
While debate bubbles along about the impact an escalation will have on the global economy, the impact on the world’s second biggest economy is becoming evident — China’s investors are bailing out and its currency is falling.
The yuan has just suffered their steepest monthly decline on record.
Chinese shares are now in bear territory, down more than 20 per cent since the recent peak in late January. They lost another 6 per cent last week.
The yuan slipped 1.5 per cent against the US dollar last week and is down about 3 per cent over the past two weeks.
Of course this might be all part of the Chinese central planners’ defensive strategy.
A weaker Chinese currency would soften the blows of higher US tariffs.
However, the Chinese authorities would be unlikely to let it slip too far for fear it might inspire an unseemly and destabilising flood of capital offshore.
Similarly, the slide on the share market is painful, but not yet a rout like three years ago.
External Link: Chinese currency and share market. Chinese factory activity slowing
The impacts on China’s real economy are also starting to show up.
The latest manufacturing (Purchasing Managers’ Index) data released by China’s National Bureau of Statistics over the weekend was weaker than expected.
While activity in the factories, particularly the big state-owned enterprises, expanded in