Dollar a Winner of Swingeing New Tariffs on Chinese EVs and Green Imports

Image © White House

Swingeing new import tariffs on Chinese goods are yet another supportive development for the Dollar, according to currency market analysts.

An escalating U.S.-China trade war is on the radar for FX traders as the Biden administration today raises tariffs on Chinese electric vehicles, semiconductors, solar and other key sectors.

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, says this amounts to positive news for the USD.

"US trade policy is tightening very significantly. It was known in advance that the US government was going to impose higher tariffs on electric car imports from China. However, it is doing so in a big way: the tariffs are being quadrupled," says Leuchtmann.

The Biden administration is set to increase tariffs on Chinese EV imports from 25% to 100% as part of efforts to protect American industry ahead of the US election.

The tariffs are expected to be announced today and form part of Biden's multi-billion dollar efforts to reindustrialise the rust-belt, reduce carbon emissions, and decrease dependence on Chinese supply chains.

The Dollar is the best-performing major currency of 2024, aided by expectations that the Federal Reserve will be amongst the last developed central banks to cut interest rates due to ongoing U.S. economic outperformance.

Cheap imports drive down domestic prices and should help in the battle against inflation, but this is something the U.S. looks keen to reject. "The Biden administration is keen to introduce fresh tariffs that could boost cost-push inflation further at the margin," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

This suggests a U.S.-China trade war is another supportive development for 'king dollar' as it keeps U.S. price pressures elevated for longer, which in turn keeps the Fed on hold for longer and maintains the USD's yield advantage.

"When U.S. governments of all stripes continue to stifle the U.S. economy in at least every election campaign, thereby creating inflationary pressures and forcing the Fed to counter with restrictive monetary policy, it is positive for the U.S. dollar," says Leuchtmann.

"Why Americans think it's so great that the government does not allow them to buy cheap Chinese electric cars remains a mystery to me," he adds.