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In a recent client note, Goldman Sachs’ Analysts argued that the declines in the Chinese Yuan on a trade-weighted basis will offset the drag on Chinese growth from the first two rounds of US tariffs.

Key Highlights (via Bloomberg):

“By helping China’s export competitiveness, the slump should boost the country’s gross domestic product by 40 to 50 basis points, which is enough to blunt the impact of U.S. levies on $250 billion of Chinese goods, Goldman economists led by MK Tang wrote in a note dated July 25.

Yuan depreciation is a relatively effective tool to cushion downward pressures on growth.

Potential policy considerations to avoid additional complications in the U.S.-China trade relationship and to mitigate domestic residents’ currency worries may restrain the scope for much further depreciation.

A 10 percent drop in the Yuan against the basket may boost export growth by about 6 basis points after a lag, adding around 80 basis points to GDP.

The notion that exchange rate depreciation can boost growth significantly without causing a large increase in inflation represents a favorable trade-off, given that the risk of high prices constraining policy easing is more important than the risk of overly low inflation.”

Goldman expects the Yuan to rise to 6.7 per dollar in three months — up from 6.7818 Thursday — amid broad dollar weakness. Risks are tilted to a weaker Yuan given possible further downward pressure from trade friction and softer domestic macro conditions.