No deal yet. So how?
So US-China trade talk did not end with a conclusion, nor it stops the tariff hike from 10% to 25%. Beijing will come up with countermeasures, but did not specify the details.
What will happen next?
Let's look at how currency exchange impact the tariff and import-export companies.
The USD has strengthened against RMB in past 5 days, since Trump announced the recent rate hike. However DXY does not show strength.
First we look at the impact of US tariff on Chinese imported goods. Chinese goods imported will be levied with higher tax, it increases the cost of goods. Naturally the import company will increase the price of the goods. US consumers compare prices and may choose to buy similar goods from other countries or they can choose US goods. It brings up sales for US/other countries company.
However when USD strengthen against RMB, Chinese goods become cheaper then. It brings down the cost and price of Chinese goods. Normally the currency strengthen less than tariff rate. In this case, higher USDCNY will soften the impact of tariff. Adding up with the retaliation of China increasing tariff of US goods, the net impact would be very minimal.
On the other hand, what will happen to the Chinese? Higher USD means the cost of US goods become expensive. Adding up with additional tax China imposes o US goods, it soon become less affordable. Chinese will turn over to local goods, which increases local sales. US companies will see sales drop.
What about the money Trump administration collected from tax? It goes to buying crops from US farmers and gives to charity. Did US really benefits from here? It just make government debt turns higher. Remember all the previous tax cuts hurts the government financial as well.
So what China should do now? I believe imposing a small number of nominal countermeasures will do. Trump wants to strengthen his supporter base eagerly. Best the China to react when closer to next US presidential election in 2020.
Post follow up:
https://www.cnbc.com/2019/05/11/trump-tells-china-to-act-now-on-trade-or-face-a-far-worse-deal-in-his-second-term.html?fbclid=IwAR3Qd65CFzJKlkaDbsCg12zyZHdRZACsfIpVZEIuoItWAd0qraQF44CGSN8
Trade war in graphics:
https://www.bbc.com/news/business-45899310
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