The Trump administration has confirmed repeatedly in recent weeks that it is confident China’s economy is weak, and that the US will “win” a trade battle that is escalating rapidly between the world’s two largest economies.
While both countries are sure to lose in the short-term, as economists warn, confidence in Washington is by many accounts misplaced. China’s economy is well positioned to weather the trade storm, allowing Beijing space to wait out the Trump administration and test US voters’ resolve.
That is the growing consensus among economists at large financial institutions, including Morgan Stanley, which sees tariffs having a marginal impact on China.
“We are not expecting any major growth correction because we think the potential impact from trade tariffs will be partially cushioned by the policy easing measures taken by the policymakers,” Robin Xing, chief China economist at Morgan Stanley, was quoted as saying by CNBC on Wednesday.
Managing the value of the yuan will also help ease any pain from the tariffs, economists at Goldman Sachs noted last month, while stressing that authorities will be careful to strike a balance. That was underscored by the recent reintroduction of the ‘countercyclical factor (CCF),’ to help prop up the yuan.
“We think the People’s Bank of China is especially wary of potential ‘overshoot’ if the yuan crosses the 7-per-dollar barrier and panic ensues. So getting the market used to a level close to 7, and using tools like the CCF to demonstrate the PBOC’s control over the currency, should help prepare the ground for possible future depreciation,” Caixin wrote in a newsletter on Monday.