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We were surprised that the escalation occurred so rapidly but not that the US decided to press its advantage (see Questioning Friday's market optimism).
The US announcement was likely partly triggered by the desire to maintain momentum going into mid-term elections. Hearings on the tariffs will likely be held in late August, the final list announced in early September, with implementation even later. Any price impact would probably not appear before the elections, allowing time for negotiation.
Inflation - Impact - Addition - CNY - %
Moreover, the inflation impact is not large. In addition, the CNY has depreciated by almost 7% from its recent highs – this is probably enough to offset the price impact of the announced tariffs.
China seems surprised by the speed of the follow-up. Allowing the market to weaken the CNY overnight may be the path of least resistance.
Investors - Reaction - China - China - Tariffs
Investors anticipate a major reaction from China. If China stops at tariffs on goods (keeping in mind that the US exports about USD 130bn annually to China, less than the USD 200bn...
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