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ABN AMRO analysts point out that the US-China tensions escalated further a week ago as in response to fresh US tariffs (10%) on USD 300bn of imports from China announced on 1 August, China retaliated on 23 August.

Key Quotes

“Beijing presented 5-10% tariffs on USD 75bn of US goods and reintroduced tariffs on US cars and car parts. The US responded immediately by raising existing tariffs over USD 250bn of Chinese goods from 25% to 30% (per 1 October) and by hiking the proposed tariff rates on the remaining USD 300bn from 10% to 15%. Strikingly, in a tweet president Trump ordered US companies to look for alternatives to China, a new element in the US-China conflict that would lead to a further decoupling of the world’s two largest economies.”

“As a result of these escalating tensions, the Chinese yuan weakened further this week, as the Chinese authorities allow some (primarily market-driven) depreciation to offset the tariff impact on China’s external competitiveness. The yuan recovered a bit after comments from Beijing that it would not immediately retaliate the latest US tariff hikes, but rather preferred discussing the removal of tariffs.”