Donald Trump has said a lot about how he plans to punish China as president, with some of the ideas more likely to happen than others.
The most likely policy to pass is the defeat of the Trans-Pacific Partnership trade agreement, but if that happens, Trump would actually be handing China a massive gift.
In fact, there are few things China wants more from America.
As Societe Generale analyst Wei Yao put it in a recent note to clients, "one upside to China under the Trump administration, in relative to the Obama administration, is that the Trans-Pacific Partnership (TPP) free-trade pact — which excluded China — looks more certainly doomed."
The TPP is a trade agreement among 12 Pacific Rim countries that includes the US but excludes China. If it doesn't pass, China would have an opportunity to fill a vacuum left by the US. The most likely vehicle for that would be China's "One Belt, One Road" initiative, which seeks to create partnerships to build infrastructure and trade with the country's continental neighbors.
And then there's the stuff that probably won't happen (most of the stuff)
The rest of Trump's China policy is harder to pull off but would be similarly likely to negatively affect the US economy.
Trump, who is set to be sworn into office on January 20, has promised to label China a "currency manipulator" on day one. He has long accused the country of keeping its currency, called the yuan or the renminbi, artificially low so that it can sell more exports.
The problem with that is there are measurable criteria a country must meet for the Treasury to classify it that way (yes, Walter, this is not 'Nam, there are rules).
Here are the criteria that must be met for a country to be considered a currency manipulator:
1) a significant bilateral trade surplus with the US;
2) a material current account surplus (>3% of GDP); and
3) persistent one-sided intervention in its currency market.
China meets only the first criterion. It does not fit the second, and as for the third, the country is doing the opposite.
Even though the yuan is hitting six-year lows against the US dollar, China is actually trying to stop its currency from falling faster. It has been quite a costly effort too, but it's worth it when considering the country's ultimate goals.
China wants to keep the yuan strong because it is trying to move its economy from one dependent on selling exports to one driven by the purchasing power of its own people. For the country to succeed in that endeavor the people need to have a currency strong enough to buy all kinds of goods, foreign and domestic.
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