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Sino-American Trade War Pt.1

Author: Ian Davis - Bullion Manager

Published: 28 Sep 2018

Last Updated: 14 Mar 2019

Trump is threatening to impose a further $200 billion worth of tariffs to Chinese imports and it would appear that the US is "winning" if we use the Chinese stock market as any indicator. Turkey and Argentina have already fell foul to the influence of the US dollar and they are likely not to be the last with South Africa, Indonesia, Russia, India and Brazil at risk. IMF Managing Director Legarde warns of a shock to emerging markets as investors are spooked and leave before trade even materialises. 

November update - The effects begin to seep deeper into Asia slowing down growth. The contagion risk becomes real as reduced Chinese demand impacts suppliers in countries such as South Korea and Vietnam. There is a concern that if the trade war drags on it may cause a global slowdown - this remains to be seen but is an ongoing worry for investors. On 28th November the war takes its first major US victim. General Motors had been subject to rising supply chain costs notably from steel and aluminium tariffs imposed by President Trump. Four production plants will close in the rust belt where repatriation of manufacturing jobs was a major political lever during the 2016 presidential campaign.  Trump has continued to raise threats. BMW has already moved the manufacture of the X3 from South Carolina to the Chinese mainland to circumvent the trade tariffs. 

December update -  Trump and Xi announced a truce following the G20 summit. As talks were held in private there was ongoing uncertainty about how the truce was achieved and how fragile any agreement could be. Following the summit markets rallied before tanking today with the FTSE falling over 1%, the Dax by over 1% and the S&P 500 falling over 3%. Investors are concerned about the reality of the truce and await details on how exactly the US and China can resolve their differences. The trade war continues to turn sour with the arrest of Huawei's CFO who also turns out to be the founders daughter in Vancouver. She has since been granted bail for C$10m with allegations that involve trade with Iran but there could be a murkier side to events as the US tries to undermine Huawei's dominance in 5G technology. China has already retaliated arresting two Canadian citizens adding more fuel onto a simmering relationship. 

January update - negotiations continue between the two biggest economies with reports of some progress. China has been reported to agree to purchase US agricultural, manufacturing and energy products to balance the deficit. News of some light at the end of the tunnel prompted markets to respond positively with the Shanghai's CSI 300 up 1.95% as of 9th January.

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