At the stroke of midnight, the U.S./China trade war stepped up one more notch with a raising of tariffs on $200 billion of Chinese goods. With China set to retaliate, is this the beginning of a global trade collapse that will impact money markets around the world, or is this the beginning of the end in the long-running battle for trade equality?
As the deadline approached, talks failed to come to an acceptable conclusion meaning that 10% tariffs are now at 25%. But despite what doomsayers may be heralding this morning, this seemingly final move could well be the catalyst behind a long-lasting and more equal trade arrangement.
Global Concern
There is an atmosphere of global concern for the “world economy” being touted by politicians, with suggestions that the rise in tariffs will have a distinctly negative impact. Last year, the IMF cut its Global Growth forecast for 2019 saying the ongoing trade war between the world’s two largest economies would lead to a "significantly weakened global expansion." France’s finance minister, Bruno Le Maire, was quick to announce to the world’s press that this move is “negative” for the world economy.
In fact, the message seems to be coming out loud and clear: This is bad for Globalism. And perhaps, that’s why President Donald Trump is so ready to take this path.
Follow the Money Men
Ministers and politicos around the world are aghast that two countries would take actions to protect their own economies regardless of the impact it may have on their own; it is “America First” writ large and poses serious implications for the connectivity of global markets. However, it seems it is only the politically motivated that are suffering cases of the vapors.
The actual money markets have been making a strong rally in response to the new tariffs. China’s stock market is already up almost 3%; its best day since the beginning of April. And before folk jump on the bandwagon of “Tariffs only help China,” we should look at the encouraging signs in other world markets.
Britain’s FTSE 100 is expected to gain around 30 points (+ 0.4%), and other European markets are already preparing for a boost:
https://twitter.com/IGSquawk/status/1126721599976103939
According to Jasper Lawrence of the London Capital Group, investors see this as one more step in a longer process. He said:
“The market’s reaction has not been all doom and gloom. We are not seeing see the same risk of reaction that we have seen in previous sessions. The fact that the two sides have agreed to continue negotiations on Friday is offering a glimmer of hope that the relationship between the two powers hasn’t deteriorated beyond repair.”
Other Factors
Another aspect that appears to be boosting the markets is that tariffs are not being applied to those goods that are already in transit. This provides a grace period for companies to adjust their next orders and begin making plans without a major financial shock hindering present activities.
But who’s watching the Chinese? To keep confidence high in the Shanghai Composite Index, fingers are pointing at state investment. There was an initial heavy drop when talks failed to reach a compromise, followed by a sudden rallying leaving a rather distinct “V” shape on the spreadsheet; the response seems too coordinated to be anything other than the government “buying in” to keep investors calm.
No matter the intent of the Chinese government, this can never be more than a short-term solution. To protect from further fluctuations, this latest round of tariffs may well be the impetus needed for concessions to be made and trade rebalanced.
It’s too early to tell whether this can be chalked up as another win for President Trump; will China come to the table? Will their retaliations be designed to show strength or to assure markets?
President Trump seems determined to get things done no matter the cost or consequence, and while this will spook a nervous media, the more robust money markets have a little more confidence. Perhaps he is familiar with an old Chinese proverb that fits the situation well:
“Good manners can be paid for with compliments, but only the sound of money will pay your debts.”
~
At Liberty Nation, we love to hear from our readers. Comment and join the conversation!
.jpg%20MAGA&w=1920&q=75)
.jpg%20UK%20Elections&w=1920&q=75)
