https://www.marketwatch.com/story/i...gh-alert-for-the-us-to-follow-suit-2018-07-09
If Trump’s tariffs sink China, be on high alert for the U.S. to follow suit
By Ivan Martchev
Published: July 9, 2018 2:33 p.m. ET
Heavy tariffs on China’s goods could lead to a credit implosion, followed by a recession. That would imperil the U.S.
It appears that the appreciation in the Chinese yuan in 2017 was a move to appease the Trump administration, and the recent aggressive sell-off in the yuan from 6.24 per dollar to as low as 6.70, accelerating sharply in the past month, as a retaliation for the tariff imbroglio.
I am sure that the Chinese leadership is trying to think of what to do in the present situation — as if Sun Tzu himself were in their position — but I don’t believe that even the legendary general (were he alive today) could prevent a bad recession in China. Still, a massive devaluation cannot be ruled out if the trade war spins out of control, which will likely turn out to be deflationary for the global financial system.
While U.S. 10-year Treasury yields have generally risen, as the Federal Reserve has been unwinding its balance sheet, accompanied by multiple fed funds rate hikes, the slope of the Treasury yield curve has dropped to 27 basis points, as measured by the 2-10 spread. One way for President Trump to gauge whether his tariff policies are backfiring dramatically is for the 10-year Treasury note yield to start dropping aggressively as the Fed is unwinding its balance sheet — or for the yield curve to invert.
That would mean a recession not only in China but in the U.S. too.
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