President Trump announced 10% tariffs on another $200 billion of Chinese goods earlier this week. Meanwhile, China has ruled out currency devaluation amid its trade war with the US. At the World Economic Forum event in Tianjin, Chinese Premier Li Keqiang said, “China will never go down the road of relying on yuan depreciation to stimulate exports.”
Having said that, the Chinese currency has fallen against the US dollar since the eruption of the US-China trade war. A weaker currency would help negate some of the impacts from President Trump’s 10% tariffs. Meanwhile, we’ve seen a sell-off in other emerging market currencies as well. In India, the domestic currency has fallen by double digits against the US dollar in 2018. Interestingly, India’s aluminum exports (AA) to the US (SPY) have risen sharply in 2018 despite the tariffs. The fall in India’s currency has more than offset the 10% aluminum tariffs imposed by the Trump Administration. Notably, President Trump also announced doubling the Section 232 tariffs on Turkey after the Turkish lira fell to all-time lows against the US dollar.
Meanwhile, the US dollar has come off its 2018 highs. A stronger US dollar hurts companies’ earnings, like Ford (F) and General Motors (GM), that get revenues from operations overseas. Coming back to tariffs, China (FXI) has also retaliated against US tariffs, which we’ll discuss in the next part.