Donald Trump once said that he would increase the tariff of China up to 60%, but now people know that he would carry out gradually and not on the first round. What is the response of the market? They said production line would shift southward to 5 Small Tigers of Asia, India, and ASEAN countries. Anyway, such a scenario has been already existing. The strategy of China will have the depreciation of Chinese Yuan so that their product would be cheaper and can attract more buyers to compensate the loss. However, the cabinet of Trump warned thus would lead to further increase in tariff to fill the gap. Thus very likely would lead to currency war.
Another point is that the Hong Kong Dollar is now having a pegged exchange rate with USD and thus made it one US dollar can exchange 7.8 Hong Kong dollar. In 2019, during the social movement of Hong Kong, Trump wished to have de-coupling, but his cabinet advised too many US capitals are still in Hong Kong and not worthwhile to do so. But now it is said that de-coupling may come true with the first 2 years of Trump 2.0. The Hong Kong Government is now trying to have plan B of the exchange rate which is pegged to a basket of currencies. In such a case the Hong Kong Dollar may have a depreciation of nearly 50%. But later on because of the attractive rate may bloom the export industry greatly.
Chinese Yuan is not a free float currency in the market and China needs to rely on Hong Kong Dollar at attract foreign capital. When de-coupling occurs, it will be a shock to currency market, stock market, gold market……etc. The effect should be evaluate thoroughly before hand and investors better prepare well for the shock.