US China Trade War Worsens As Trump Announces Possibility of Further Import Tariffs

19 10

Global risk sentiment remains on shaky ground this week as the US China trade war continues to intensify. Following the US President’s announcement of import tariffs and investment restrictions for China worth around $60 billion, Beijing responded this week by announcing its own 25% import tariffs on US goods worth around $50 billion, including products such as cars, chemicals, jewellery, corn and whiskey.

The move by Beijing, announced this week, confirmed the fears held by many that China would indeed retaliate to US sanctions with its own measures. Fears of such a move were highlighted last month by SNB chief Jordan who warned markets that escalating trade disputes could lead to excessive strengthening of CHF, requiring continued intervention by the SNB whom the market had previously suspected was on the cusp of a shift in policy.

Trump Explores Further Tarriffs

Tensions rose once again as President Trump announced a response to China’s import tariffs. In a statement released to the media, Trump has ordered the US Trade Representative to find an additional $100 billion worth of import tariffs on Chinese imports. Although this has not yet become official policy, it is a clear message that the President is certainly willing to go further down the rabbit hole.

If such further measures are introduced the fear is that China will once again be forced to respond in kind in order to maintain its profile. China will not want to be seen to be giving in to Western intimidation and many fear where this dispute might end, with the more pessimistic commentators citing the risk of eventual conflict if the dispute worsens.

In the statement, the President said “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers. In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate… and, if so, to identify the products upon which to impose such tariffs.” Trump also added “I have also instructed the Secretary of Agriculture, with the support of other members of my Cabinet, to use his broad authority to implement a plan to protect our farmers and agricultural interests.”

Trump: “We can’t allow this to happen”

Talking specifically about his issues with China, whom trump states is taking advantage of the US, said that “We can’t continue to allow this to happen, where hundreds of billions of dollars is taken out of our country and our system.” He continued; “If they make a car, they sell it here, it’s 2.5 percent tax. If we make a car and try and get it into China, number one, they won’t take it. But, if they did, it’s 25 percent tax.”

The comments in the statement seem sharply juxtaposed with comments made by President Trump earlier in the day, during a tax reform round table in West Virginia. Trump commented at the round table that; Chinese President, Xi Jinping is “a friend of mine, and I’m a friend of his”.

The language used in the statement is consistent with the tone of Trump’s election campaign, seeking to build support at the blue-collar level while aiming blame at a perceived common enemy. Given the upcoming congressional elections in May, this clearly can be seen as a tactic to once again build support in the polls.

What Could Prevent Further US Action?

The likelihood of the US continuing down this aggressive protectionist route seems fairly high unless either of the following happening:

1 – The moves cause a sharp and sudden narrowing of the US trade deficit, specifically the bilateral trade deficit with China.

2 – China responds submissively to US trade sanctions without further reaction or instead agrees with the US to make concessions sufficient to deter the US from taking any further action by giving Trump the feeling that he has “won”

3 – One further aspect which might lead to a cessation of US sanctions is if the Republican party perform well in the polls heading into the November US congressional elections. It is of course worth considering that Trump’s recent political activity is designed to grab attention and garner support heading into these elections.

For now though, the market (and indeed the world) watched to see the next step in this disupte with everyone hoping for a claming of the storm.

START TRADING

or practice on DEMO ACCOUNT

Trading CFDs Involves high risk of loss