The global concern for a trade war continues to build as the rhetoric between the US and China has intensified over the last week.
Chinese state media has criticised the moves by the White House, labelling the Trump administration “selfish”, “rude” and “mundane”. An editorial in the state owned Global Times said on Sunday “the unpredictability of the Trump administration has become mundane, or even boring for China”… “It reinforces the difference in images of the two countries: one challenges the foundation of global trade through sudden attacks; and one that is prepared to defend itself in a trade war that it cannot avoid.”
Alongside this, an editorial in the People’s Daily, also over the weekend, added that Trump’s moves have given China the opportunity “to see more clearly the face of the Trump administration”. Furthermore, and in a more poetic take on things, China’s official Xinhua news agency said “the wise man builds bridges, the fool builds walls. With economic globalisation there are no secluded and isolated islands”.
China To Retaliate
These comments come in the wake of recent moves by the US with Trump last Friday unveiling a list of $50bln in Chinese goods which will be hit with a 25% tariff along with a declaration of intent to target further restrictions if China retaliates. Despite this threat, China responded almost immediately, releasing a list of tariffs to hit $50bln of US imports.
The list of goods to be targeted by China in retaliatory tariffs, numbering more than 500 categories, includes beef, poultry, pork, dairy products, seafood, tobacco and soybeans which is significant as China is the biggest buyer of US soybeans. Furthermore, China has said it will target an additional $16bln worth of products from the US such as coal, crude oil, natural gas and medical equipment.
The US is not likely to take this retaliation lying down and US trade representative Robert Lighthizer announced that the White House will release a document by the end of June highlighting restrictions to be placed on Chinese Investment in the US, as well as on Chinese purchases of advanced technology. Trump has also said personally that he is prepared to increase the value of restrictions on China three-fold to $150bln.
For now, it seems clear that both sides are keen not to lose face in the global picture though many hope for negotiations which will secure a moderated agreement between the two sides. Indeed, even the editorial released over the weekend noted that “Given the frequent flip-flopping of the Donald Trump administration, it is still too early to conclude that a trade war will start,”
Market Hopeful For Negotiation
For now, the market doesn’t appear too worried as the current proposed tariffs wouldn’t cause any significant damage to the global economy and there is still hope that despite all the rhetoric, the two sides will be able to strike and agreement.
The US Dollar has shrugged off concerns relating to the growth outlook in the wake of Trump’s moves and the market instead seems focused on the story with the Fed who last week raised rates for the second time this year alongside upgrading its rate hike forecast to two further hikes this year from one previously.
USD is currently challenging resistance at the 95.10 level which was the October 2017 high. If price breaks above here the next two key levels will be the 97.66 and 100.67 levels. Alternatively, if we see some pull back from the current level it will be worth keeping an eye on support at the 91 level which could prove to be the right shoulder of a large inverse head and shoulders pattern.