US-China Tariff Tensions Deepen: Yuan Stability and Stimulus Silence Test Markets

Peter Schiff, Chief Economist and Global Strategist at Euro Pacific Asset Management, commented:

“Many claim China won’t sell Treasuries as doing so would strengthen the Yuan, which they say would damage China’s exports. But US tariffs are now so high that a weaker Yuan won’t move the needle. China is better off with a stronger Yuan to improve domestic demand.”

While Schiff supports a stronger Yuan to support demand, others like Alicia Garcia Herrero believe currency weakening could serve as leverage.

Alicia Garcia Herrero, Asia Pacific Chief Economist at Natixis, stated:

“Beijing could also let the Yuan weaken further, putting pressure on the dollar, or stoke speculation about selling Treasuries. China still has a lot of leverage, a lot. More so because the US economy won’t do well, especially in the second half of the year so leverage might actually increase rather than decrease.”

Despite domestic demand challenges, Beijing’s restraint on stimulus may reflect a strategy to wait out the Trump administration’s tariff approach.

However, recent warnings and China halting rare earth mineral shipments to the US signal China’s willingness to escalate tensions if necessary.

Tariff Uncertainties Impact Hong Kong and Mainland China Equities

Initial resilience to US tariffs has faded across Hong Kong and Mainland China markets. Investor sentiment has weakened amid heightened trade tensions and the absence of fresh stimulus.

Notable equity moves include:

• Hang Seng Index down 7.49% in April, narrowing its year-to-date (YTD) gain to 6.65%.
• Shanghai Composite Index off 3.57% in April and down 4.72% YTD.
• Nasdaq Composite Index down 2.7% in April, extending its YTD decline to 12.84%.