Trade War

Economic Events

“Trade War” Rhetoric Heat Up

 

Between Trade Tension & FX Battles

Days of thinking that a global “trade war” was a low probability event are gone.

In the past couple of months, there has been a substantial increase in rhetoric and tit-for-tat import tariffs policy action from US, China and EU. In reaction to US $100bn in protective imports tariffs and restrictions on Chinese investment, China retaliated with punitive measures against 128 American goods.

Adding further fuel to the fire, China stated it would respond to any additional US tariffs on Chinese products with countermeasures of the “same proportion.” Fading are the hopes that renegotiation between U.S. and Chinese policymakers, and/or mediation by the WTO would replace heated battle. We have not yet seen the EU reaction to Trump’s protectionism other than warning it would respond with its own 25% tariff on $3.5bn of American goods.

Despite Trump’s Twitter declaration that trade wars are “good and easy to win”, this conflict is unlikely to resolve without damage. Broken trade routes ultimately threaten global growth. Weak commodity prices depend on free trade: endangering this artificially tightens supply and drives up prices.

In FX, trade-dependent emerging market nations are exposed.

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