If China aggressively intervenes in the yuan, it “raises the risk of a tariff cascade”

Reuters published a piece on China is allowing the yuan to weaken next year to address higher tariffs from the incoming Trump administration.

The article is gated, but this snippet from HSBC sounds warning bells.

• Currency adjustments are on the table as a tool to be used
  to mitigate the effects of tariffs.
• It’s tempting to think that Chinese currency weakness could
  fully offset the tariffs in the U.S. and kind of neutralise the
  impact on the economy. But I think that would be short-sighted.
• The Chinese leadership is likely also to be mindful about
  the impact of a weaker Chinese currency on other trading
  partners.
• If China takes the currency aggressively lower, it raises
  the risk of a tariff cascade … so I think there is a bit of a
  risk here that if China uses its currency angle too
  aggressively, it could lead to a backlash among other trading
  partners and that’s not in the interest of China.

***

Earlier re China/tariffs/Trump/Xi:

• Trump has invited Chinese President Xi Jinping to attend his inauguration next month

USD/CNY weekly candles … yuan is not strong on this time frame.

This article was written by Eamonn Sheridan at www.forexlive.com.