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Trump will back down on tough China policies: Yale economist

President-elect Donald Trump will retreat from the threatening campaign rhetoric used towards China once he is inaugurated, Yale economist Stephen Roach told CNBC.

The former chairman of Morgan Stanley Asia told CNBC on Friday that Trump's pledge, in which he declared he would denounce China as a currency manipulator on his first day as president, will be scaled back.

"This is an area where (Trump) is going to back down… somewhat, not completely.

"It's a two-way relationship, the United States depends on China and China depends on the U.S. so if the U.S. goes toward unilateral tariffs or this absurd currency manipulation charge, we can expect retaliation from China," Roach added.


Opportunities with China

Trump has been consistent and explicit with his commitment to sanction China for its currency policy and even included the promise in his first 100-days action plan as president.

Roach is one of several critics to question this stance that Trump has adopted and instead has urged the President-elect to consider the opportunities that working directly with China can bring to the U.S.

"Cutting a deal with the Chinese on a bilateral investment treaty, which is something that has eluded the Obama administration for the last 8 years, but if Trump were to do a deal, and he claims to be a master at the art of the deal, that would open Chinese markets to US companies.

"What better thing for a businessman to do than to provide market opening opportunities for hard-pressed US companies," Roach said.

Fed monetary policy to be 'glacial'

The Yale economist also stressed that Trump would likely be unable to be as active as he wished in terms implementing tax changes or even with the economy as a whole. Roach argued that Trump would be treading on dangerous ground as he inherits an economy in a very difficult situation.

On Thursday, Federal Reserve Chair Janet Yellen addressed the Joint Economic Committee of Congress and stated that an interest rate hike could be expected "relatively soon". Though, Roach expects the Fed's monetary policy moving forwards to be incredibly slow.

"The Fed is going to continue to be glacial in its normalization and that will limit the upside of the US dollar and if I'm right on the current account deficit getting wider then that will also limit the upside of the US dollar," Roach said.