Heard on the Street: The yuan is already strengthening, and not because of Donald Trump and Xi Jinping
By Nathaniel Taplin March 18, 2019 4:48 a.m. ET Generals, the saying goes, always fight the last war. Chinese exports held up well in 2018 partly thanks to a vertiginous drop in the currency. President Trump and his trade generals want to make sure China doesn’t use the yuan to gain a competitive advantage again, and are asking for guarantees on currency stability as a part of any trade deal with Beijing.
China’s exports are hurting, but the drop in its imports since late 2018 has been more dramatic, thanks to weakening growth and the sharp fall in oil prices. For most of 2017 and 2018, Chinese import growth was running roughly 10 percentage points faster than growth in exports. Since December, import growth has collapsed, helping shore up China’s trade balance and lending support to the currency.
All of this means that the yuan is strengthening without much direct help from Chinese policy makers. Although China’s foreign reserves dipped briefly last fall when trade tensions were near their height and the yield on 10-year U.S. Treasurys was running above 3%, they have since rebounded. Net foreign-exchange sales by Chinese banks have also disappeared, indicating limited outflow pressure.
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