While Asia is particularly vulnerable to the negative effects of a strong dollar, China is even more at risk, Smith emphasised.
“The problem is particularly acute for China with economic growth weak (and well below official figures) and with the yuan itself now safely within the IMF’s currency elite Special Drawing Rights (SDR) group there is a clear need for the yuan to continue its fall as internal inflationary forces have eroded competitiveness.
“This is made more problematic with Trump having decided to place a dedicated Sinophobe, Peter Navarro (an economics professor whose books include “Death by China – Confronting the Dragon”), as head of the National Trade Council bringing the very real risk that a weak yuan will allow Trump to describe China as a currency manipulator and slap high tariffs on trade, without needing legislative approval.”
Such aggressive anti-China tactics could result in unnecessary and messy trade and currency wars, which would be further bad news for financial assets.
“Trump’s current approach to attempting to adjust terms is rather akin to lancing a small boil with a machine gun. The consequences are likely to be messy and counter-productive,” he concluded.
