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Opinion
Tracy Chen

What a China Response to U.S. Tax Cuts Means for the Yuan

Whatever happens, expect a a drag on the Asian's nation's current-account balance and a subdued exchange rate.
The U.S.-China economic relationship is getting perilous.

The U.S.-China economic relationship is getting perilous.

Photographer: Pool

China has an Achilles’ heel in the capital outflows that it has tried so hard to control. Although a weaker U.S. dollar aided China’s efforts to stem the flow of cash leaving the country in 2017 and gave a boost to the yuan, things may be about to change.

The Trump administration looks like it’s moving closer to labeling China a “strategic competitor,” and a trade war is becoming a real possibility. In addition, further interest-rate hikes by the Federal Reserve, when combined with tax cuts, may cause the dollar to strengthen -- and the yuan to weaken -- as capital flows into the U.S.