Bridgewater Founder Ray Dalio recently met with high-level Chinese leaders. During Trump's "Liberation Day" tariff escalation tsunami, he believes that the United States and China can reach an agreement through negotiations by appreciating the renminbi in exchange for tariff reductions. Will Taiwan, which has been on the currency manipulation watchlist five times in a row, follow suit and allow the Taiwan dollar to appreciate?
The Consequences of Liberation Day
Following up on my post below from earlier this week, now that we see yesterday's tariff announcements, it appears to me that the first order consequences of them will be significantly stagflationary in the U.S. and significantly… https://t.co/GIE4l68HAt
— Ray Dalio (@RayDalio) April 4, 2025
Table of Contents
ToggleTrump's Aggressive Tariffs, China Decides to Counterattack
After Trump announced aggressive tariff policies on April 2, 2025, U.S. stocks plummeted for two consecutive days.
After the United States announced a 34% tariff on Chinese goods, China retaliated by announcing a 34% tariff on all imported products from the United States. U.S. President Trump harshly criticized China's retaliation to his comprehensive tariff plan and vowed his economic policy would "never change". The U.S.-China confrontation is imminent.
Dalio Believes the Renminbi Will Strengthen
After recently meeting with Chinese officials including Vice Premier He Lifeng, People's Bank of China Governor Pan Gongsheng, and Minister of Commerce Wang Wentao, Dalio made the following comments:
I can imagine that the U.S. and China will negotiate an agreement to strengthen the renminbi against the U.S. dollar in exchange for some trade relief.
He also believes that if this occurs, China will experience more severe deflation and economic recession, which in turn would require more loose monetary and/or fiscal policies.
After the People's Bank of China set a stronger-than-expected daily reference rate to support the renminbi, the currency remained almost unchanged this week.
Chinese officials have historically been reluctant to allow excessive renminbi appreciation. They believe that the yen's appreciation after the Plaza Accord in the 1980s was one of the reasons Japan fell into the so-called "lost decade". Whether Dalio's remarks will come true remains to be seen.
Will Taiwan, Also Viewed as a Currency Manipulator, Follow Suit?
As U.S. President Trump and Treasury Secretary Bezant have repeatedly mentioned currency manipulation, currency disputes may become an important bargaining chip in trade negotiations. Will Taiwan, which has been on the currency manipulation watchlist five times in a row, allow the Taiwan dollar to appreciate?
According to Financial M Square's chart, the Taiwan dollar has depreciated by 2.63% against the U.S. dollar in the past year, compared to the renminbi's 0.64% depreciation and the yen's 3.21% appreciation. The Taiwan dollar's exchange rate has remained weak, which is related to Taiwan's export-oriented economy and the central bank's long-term attitude of not intervening in depreciation.
The U.S. Treasury's semi-annual currency report will be released this month. Facing Trump's government's 32% high tariffs, will this force Taiwan's central bank to take action?
Currency trends usually correlate positively with the country's stock market, but while the Taiwan Weighted Index has risen 119% in the past five years, the Taiwan dollar has depreciated by nearly 10% in the same period.
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