Rabobank's Michael Every reports that Chancellor Merz has called for dialogue with China on monetary and FX policy, arguing CNY is 20–30% undervalued and should float more freely. Every notes China will not accept a Plaza Accord-style deal, and stresses that China’s growing trade surplus with the EU may push Europe toward US-style high tariffs.

Europe challenges China’s FX stance

"Chancellor Merz just called for a dialogue with China on its monetary and FX policy, saying that the EU could not win, no matter how innovative or good the bloc may be, against a competitor that artificially manipulates its currency."

"He argued that CNY is 20-30% undervalued and needs to be allowed to float more freely so that it can appreciate to a fairer level."

"To be clear, there is no world in which China will allow, or Europe is in any way able to impose, a new Plaza Accord on China: it is not going to happen."

"Yet the surging Chinese trade surplus with the EU, which is now larger than with the US and is close to doubling since 2020, must be addressed by October (by magic; or Chinese pledges of purchases of EU soybeans; or of Airbus aircraft when Beijing is also winking at Boeing?) or Europe says it will be forced to follow the US high tariff path after many years of patronising eyerolling at how disruptive such atavistic tactics are."

"China trade data today saw its imports up 36% y-o-y vs. 26.1% expected and exports up 27% vs. 19%: we will have to wait for the breakdown of the EU numbers, but they are unlikely to show what Brussels wants to see."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)