There is one part of the explanation that I found confusing (could be because I am reading this at 1am).
You write that (in referenco to imposing a tariff on imports):
"Assets that an investor will use himself, a house in the Bay Area that a Chinese millionaire buys for his son at Stanford, is now more attractive, since the changed exchang…
There is one part of the explanation that I found confusing (could be because I am reading this at 1am).
You write that (in referenco to imposing a tariff on imports):
"Assets that an investor will use himself, a house in the Bay Area that a Chinese millionaire buys for his son at Stanford, is now more attractive, since the changed exchange rate means that it costs less in yuan than before."
But if a tariff on Chinese imports is imposed / increased, this will make Chinese goods more expensive in US dollars, hence the demand for yuan decreases, hence yuan becomes cheaper in dollars (and so dollars become more expensive in yuans). But this means that the Bay Area house, priced in dollars, is going to be more expensive in yuan than before ... or am I missing something?
If a tariff is introduced, purchases of Chinese goods by Americans decrease (which causes the $ to rise) and therefore sales of American assets to the Chinese decrease (which causes the $ to fall). The $ must remain stable.
There is one part of the explanation that I found confusing (could be because I am reading this at 1am).
You write that (in referenco to imposing a tariff on imports):
"Assets that an investor will use himself, a house in the Bay Area that a Chinese millionaire buys for his son at Stanford, is now more attractive, since the changed exchange rate means that it costs less in yuan than before."
But if a tariff on Chinese imports is imposed / increased, this will make Chinese goods more expensive in US dollars, hence the demand for yuan decreases, hence yuan becomes cheaper in dollars (and so dollars become more expensive in yuans). But this means that the Bay Area house, priced in dollars, is going to be more expensive in yuan than before ... or am I missing something?
I think I am the one missing something, that I got that backwards. I will think about it again and if so remove the sentence.
If a tariff is introduced, purchases of Chinese goods by Americans decrease (which causes the $ to rise) and therefore sales of American assets to the Chinese decrease (which causes the $ to fall). The $ must remain stable.