Trump and his protective policy "America First"
It remains to be seen how Trump’s protectionism will affect the global economy in the long term. In the short term, you can clearly see that the US imports from China have not decreased.
As a comparison, it should be mentioned at this point that imports in 2015 amounted to 483.188,7 and in 2016 to 462.618,1. We think that protectionism will not affect China as much as many fear. The main influencers of the exchange rate will remain the economy and different monetary policies. It is very likely that the Chinese economy will continue to grow faster than that of the US. In addition, the foreign exchange sales of the Yuan will continue to increase. We also assume that the Yuan will be floating freely in the foreseeable future and that the intervention of the PBC will continue to decline. Considering all the above, you quickly come to the conclusion that the Yuan’s importance will keep growing affecting its value. This leads to a weaker USDCNY over the next decade.
How will China change?
The new “normal” will most likely look like:
- declining investments from abroad as production costs increase
falling number of exports as products become more expensive
falling number of imports of raw materials
Increasing imports of luxury products and goods of superior quality
a strongly growing service sector
increasing domestic consumption
increasing purchasing power