Does China face a currency war as Trump taps Soros protege Bessent for Treasury chief?
South China Morning Post
4 min read
China may be under pressure to let its currency appreciate and should reduce reliance on the US market, Chinese analysts said, after a former protege of billionaire George Soros was tapped to become Washington's top economic official.
US president-elect Donald Trump on Friday picked hedge fund manager Scott Bessent, founder of investment firm Key Square Capital Management, as his nominee for Treasury secretary.
The role would see Bessent tasked with leading US economic policy, financial markets and sanctions policy. He would also be a key player in implementing what is expected to be a tough economic agenda against China.
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Bessent, a major economic adviser and fundraiser during Trump's presidential campaign, is a supporter of the returning leader's tariffs policy. He has also advocated tax cuts, market deregulation and increased energy production.
Recruited by Soros Fund Management in 1991, Bessent was among those pushing for shorting the pound sterling in 1992, which saw Soros reportedly pocket as much as US$1 billion.
As the fund's chief investment officer between 2011 and 2015, Bessent gained further fame for successfully shorting the Japanese yen in 2013.
In 2015, he left the fund and set up Key Square. He was one of the few Wall Street bankers who supported J.D. Vance as Trump's running mate.
His background sets him apart from other Wall Street bankers who advocate engagement with China, according to Simon Zhao, associate dean at the faculty of humanities and social sciences, Beijing Normal University-Hong Kong Baptist University United International College.
"Soros has long held a bearish view on Chinese investment. So it is reasonable to assume that [his disciple] Bessent will not continue the Biden administration's engagement policies with China," Zhao said.
Janet Yellen, the sitting Treasury secretary and former Federal Reserve chair, has years of experience dealing with Chinese counterparts and other financial officials. Bessent, on the other hand, has rarely commented publicly on China.
"Yellen has stuck to engagement and policy discussion with China, while this is uncertain for Bessent," said Gong Jiong, a professor at the University of International Business and Economics in Beijing.
Trump has long expressed his unhappiness with a strong US dollar, which he claims hurts the competitiveness of American products, and blamed China for maintaining a weak yuan to help its exports.
In August 2019, some 2½ years into Trump's first term, the Treasury Department labelled China a currency manipulator, escalating the trade war launched by Trump the previous year to the edge of a currency war.
Six months later, the department dropped the label as both sides agreed to halt the war, with China promising to boost purchases from the US.
However, Gong does not foresee a currency war with the United States under Bessent.
"Bessent may pressure the yuan to appreciate against the US dollar, but he is likely to conduct [this] via talks rather than waging a currency war," said Gong.
Trump has also warned against the waning influence of the US dollar as a global reserve currency. In an interview in August last year, he said the decline of the greenback's global status was "bigger than losing any war."
"Trump has been highly dissatisfied with the weakened international standing of the US dollar," Gong said. "He might focus on improving the dollar's status in his new term by adjusting sanctions and other means."
Analysts have long warned that the US-China trade war and the US-led tech containment of China would deepen in Trump's second term.
Trump imposed duties on around US$300 billion worth of Chinese imports during his first term and has threatened up to 60 per cent tariffs on all Chinese goods when he returns to the White House.
But Bessent was likely to favour a phased approach to tariff hikes on imports because of inflation concerns, Gong said.
However, the treasury secretary may have a lesser say on tariffs, as this task is traditionally carried out by the US trade representative.
High-tariff policies will not solve America's economic issues, said He Weiwen, a senior fellow with the Centre for China and Globalisation, a Beijing-based think tank.
He expects Bessent to use a "negotiation-for-concessions" strategy when dealing with China.
As a precaution, "China should cut reliance on the US market [and] enhance cooperation with the Asean, European and AANZFTA markets", he said, referring to the Association of Southeast Asian Nations and the Asean-Australia-New Zealand Free Trade Area, respectively.
China should also actively explore the possibility of direct investment in the US to counter a possible worsening of trade tensions, he added.
