U.S. President Joe Biden said he'll review Trump-era tariffs imposed on imports from China amid growing calls from businesses to remove the levies, fueling a rally in the offshore yuan.
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Biden said he's considering removing some of the tariffs and would talk with Treasury Secretary Janet Yellen about it after returning to the U.S. from Asia. "We did not impose any of those tariffs—they were imposed by the last administration," he said at a press conference in Tokyo Monday.
The offshore yuan jumped as much as 0.7 percent in reaction and reached the strongest level since May 5. That came after a 1.5 percent rise last week in response to easing lockdowns in Shanghai and stronger sentiment due to a reduction in a key lending interest rate on Friday by Chinese banks.
"A reduction of U.S.-China tariffs is taken to be positive for U.S.–China relations, and that translates to yuan gains," said Fiona Lim, a senior currency analyst at Malayan Banking Bhd. "However, we are wary that mentions of tariff reduction have surfaced time and again," she said.
The yuan had fallen past 7 per dollar in the midst of a U.S.–China trade war that started in 2018, before strengthening as the two nations signed a trade deal in early January 2020. The U.S. imposed tariffs on more than $300 billion in imports from China after a U.S. investigation concluded that China stole intellectual property from American companies and forced them to transfer technology. China then responded with its own taxes on imports.
A rollback of U.S. tariffs would be positive for China's exports, but supply-chain disruptions and factory shutdowns due to Covid Zero in China could significantly limit the benefits from any potential reductions, economists including Aichi Amemiya at Nomura Securities International wrote in a note last week.
The offshore yuan was up 0.5 percent, to 6.6673 per dollar, while the onshore unit rose 0.5 percent, to 6.6615 at 4:22 pm in Hong Kong. The yuan was supported by stop losses on the currency's short positions, according to traders who asked not to be identified because they aren't authorized to speak publicly.
Tariff Removal as a Tool to Control Inflation
The Biden administration has maintained most of the tariffs imposed by his predecessor, Donald Trump. However, with inflation running at the hottest pace in four decades, the president has come under pressure from some economists and lawmakers, as well as the U.S. Chamber of Commerce, to reduce or eliminate the tariffs.
Biden said earlier this month that he and his advisers are weighing whether to cut U.S. tariffs on foreign imports to try to fight inflation. U.S. economists say lifting the tariffs would help to ease inflation, but aides within the administration don't want to suspend tariffs and risk appearing soft on China ahead of the November congressional elections.
Other Asian currencies and the Australian dollar received a boost from Biden's comments. The Aussie rose as much as 1.2 percent, to 0.7126 per greenback.
Any easing of tensions between the U.S. and China could set a more benign environment for constructive Australia-China relations as well, Maybank's Lim added.
—With assistance from Nancy Cook, Lin Zhu and Ran Li.
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