Janet Mui: Why trade tensions can lead to a weaker Chinese yuan

Negative impact of US tariffs

Escalation in trade tensions is today regarded as the biggest risk to global growth, and in particular to emerging markets, writes Janet Mui, economist at Cazenove Capital.

As the red lines between China and the US are hard to cross, we are unlikely to see a de-escalation anytime soon.  We think the Chinese yuan depreciation is going be a gradual process and unlikely to be pursued in an aggressive manner by the authorities. It is a very sensitive policy that could impact financial stability and lead to capital outflow. However, if the trade "war" is a long battle, China may have few other options.  Here, we identify three reasons why the Chinese yuan is likely to weaken in this environment. Firstly, at face value, China suffers disproportionately m...