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May 15 - 10:55 AM

MUFG: Impact of New US Tariffs on China and USD Dynamics

By eFXdata  —  May 15 - 09:30 AM

Synopsis:

MUFG analyzes the recent U.S. decision to implement tariffs on Chinese imports, including electric vehicles (EVs), steel, and aluminum, examining the implications for U.S.-China relations and the potential effects on the USD.

Key Points:

  • Tariff Implementation: The U.S. government has initiated tariffs on select Chinese imports, aiming to preempt a potential surge in EV imports from China. This move is stated to be precautionary rather than political.
  • China's Reaction: China has criticized the new tariffs, urging the U.S. to rescind them and threatening to take strong measures to protect its interests.
  • Political Responses: Former President Trump criticized the measures as insufficient, hinting that more aggressive trade policies could be expected if he were re-elected.
  • Economic and Policy Implications: The tariffs are part of a broader strategy by the Biden administration to manage inflationary pressures ahead of the presidential election.

Conclusion:

The introduction of new tariffs on Chinese goods marks a significant development in U.S. trade policy, potentially influencing U.S.-China economic relations and impacting global trade dynamics. For the USD, the immediate effect might be bullish, especially if trade tensions escalate. However, the longer-term impact on the USD will depend on the broader economic context, including domestic policies and the actions of the Federal Reserve. As the presidential election approaches, the political landscape could further shape these dynamics, with potential policy shifts depending on the election outcome.

Source:
MUFG Research/Market Commentary

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