China's Central Bank Living Life In The Trumpian Fast Lane

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Yet headwinds abound. China's industrial output fell 5.8% year on year in May. Fixed-asset investment rose just 3.7% year to date, weaker than economists expected.

Odds are, Pan's PBOC will be under increasing pressure from President Xi Jinping's government to add more liquidity to the economy.

“Given the prolonged property weakness, increased labor market stress and the unsustainability of export frontloading, we expect additional policy easing measures in the second half of the year,” Goldman Sachs economists wrote in a note.

“Though we caution that the urgency for significant stimulus in the near term appears lower given that year-on-year real GDP growth is on track to exceed 5% in the first half.”

The second half is hard to gauge. No one can say, for example, if Trump's China tax - now 30% - might be 10% two months from now or 100%. Or whether Trump's 25% auto tax will soon be 50% or zero. The same with his levies on steel and aluminum, the state of the“reciprocal” tariffs or the“unilateral” rate to come.

In an unbalanced, export-driven economy suffering from falling prices, this uncertainty makes it virtually impossible for Chinese companies to plan and strategize for the last five-and-a-half months of the year. Such uncertainty across a 1.4 billion-person economy is how recessions happen.

Pan's challenge is even bigger than that. He's on the front lines of Trump's threats to fire Fed Chair Jerome Powell. The same goes for Trump's often-expressed desire for a weaker dollar. And the clash on Capitol Hill over giant budget-busting tax cuts.

The May 16 move by Moody's Investors Service to revoke Washington's last AAA rating put an even more intense spotlight on the US's nearly US$37 trillion national debt.

Analysts at Moody's argued that“successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs . We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

China is no longer the top holder of US Treasury securities. That dubious honor is all Japan's, which is stuck with $1.1 trillion of Washington's debt. Yet Asia and its nearly $3 trillion of Treasuries are uniquely on the frontlines of any Trump attempt to engineer a more advantageous exchange rate.

The only thing more perilous than a runaway dollar luring the lion's share of global capital is a plunging one arkets everywhere.

“The central bank will likely revert to a wait-and-see mode while the US and China attempt to shore up their trade pact,” said economist Steve Cochrane at Moody's Analytics.

Carlos Casanova, economist at Union Bancaire Privée, notes that“the economy is still facing structural headwinds, while the US-China ceasefire remains exceptionally brittle.”

Since the Geneva talks in mid-May, Trump has imposed measures affecting Chinese students and threatened to double steel and aluminium tariffs to 50%.“Additional support is likely needed to prevent a sharp slowdown,” Casanova said.