Trump’s China Rhetoric Depresses Markets
Donald Trump has long espoused the simplistic view that if the USA engages in a trade war (or, seemingly, many trade wars) it will quickly emerge victorious with its “enemies” capitulating to what the US wants. Whilst this belief seems to come from the business muscle that he used to use in private transactions, it cannot be applied at a state level against other major economies as a quick and sure solution to trade problems, as the USA is demonstrating. The reason. behind this is simple: international relationships, political and commercial, are much more complex and interdependent than a bilateral dispute between two businesses of (usually) wildly differing sizes.
The trade dispute between China and the USA (instigated by the US) and other trade spats between the USA and (often) its allies, have been credited with exacerbating the slowing of the expansion of the global economy. Consequently, optimism had crept into the business community over positive signs emerging from bilateral Sino-US trade talks which appeared to be making progress, however, bellicose remarks from the US President recently have sent a chill through the investment community and sent global markets lower.
The President’s ire seems to have been triggered by reports that China is trying to back peddle on what the US thought was a deal. Trump is threatening to double tariffs on $200 billion worth of Chinese goods as early as Friday of this week. However, a planned meeting of the two sides is still to take place on Thursday.
The renewed threat of further sanctions was enough to shave 1.5% of the Nikkei and 1.8% off the Dow Jones. The FTSE has fallen by 1.6%; the S&P 500 lost 1.7% and the CAc an Dax both closed down by 1.6%.
The downturn in stocks caused a flight of some liquidity into the Yen which has risen by two Yen against the Dollar so far this week falling from 111.6 to 109.6 to the Dollar (peak to trough), nicely underlining the relationship between politics, macroeconomics and currency values.