BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/35

Trade talks between mid-level officials from China and the United States continued in Washington, DC on August 22–23, but failed to deliver results. On the second day of meetings, the US imposed its earlier threatened 25 percentage-point round of tariff increases on $16 billion worth of Chinese imports.China responded immediately by imposing similar import duties on the same dollar amount of select imports from the US.

If trade tensions further escalate, the US says it will go ahead with import tariff hikes on another $200 billion worth of Chinese imports. Public hearings by the US Trade Representative's office, currently underway to finalise the list of targeted products, should be wrapped up on September 5. If the tariff hikes on the list are implemented later in September as planned, China has promised another round to tariff hikes affecting $60 billion worth of US imports.

China has held the line on further yuan devaluation amidst the trade policy wrangling. The yuan has actually rebounded by about 2 % against the dollar since hitting a low in mid-August. At the start of this month, the People's Bank of China reinstated use of a "counter-cyclical factor" in determining the yuan's appropriate reference exchange rate, thereby helping prevent further devaluation. On Friday (Aug. 31), one dollar bought 6.83 yuan.

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