The Trump Effect: Will Beijing Buckle or Retaliate

As the trade war enters a new phase, will the U.S administration have to back down or will it be Beijing who buckles under the threat of fresh tariffs?
Bob Mason
Trump Effect

The Asian equity markets took a hammering this morning and the European majors are following suit at the time of writing.

On Thursday, Trump’s delivered his latest Twitter Tirade following the end to trade talks earlier in the week.

Market expectations of a resolution to the extended U.S – China trade war were low. Perhaps the U.S President was looking for more than an agreement to continue talks next month.

China had reportedly committed to increasing the import of agriculture products. Technology transfer and Huawei have yet to be resolved, however. There’s likely to be some doubt as to just how much of a boost in demand for agri there will be.

While the U.S President has had a tendency to Tweet ahead of scheduled talks, the latest Tweets suggest that there’s unlikely to be too much coming from Beijing.

It’s no secret that the U.S president believes that China is stalling on any trade commitments, with the U.S presidential elections scheduled for next year.

A commitment to long-lasting trade terms could be more damaging to China than any short-term pain. The U.S administration’s demands for China to boost the import of U.S agri is a clear indicator that Trump is also conscious of the negative impact of the trade war on his chances of reelection.

The FED has already cut rates as the extended trade war takes a deeper bite into global demand. Further economic stress as the presidential campaign heats up would be something Trump will need to avoid.

Beijing

When considering Beijing’s stance, it continues to be hard to imagine that Chinese negotiators would buckle at this stage.

The Chinese economy has suffered as a result of the trade war. Chinese government support will likely limit any material slowdown near-term, however.

The good news for Beijing is that the FED continues to maintain its impartiality. The FED’s concerns over the effects of the trade war on the U.S and global economy squarely places the blame of the softer economic growth on the U.S administration.

Trump will need to turn things around in the coming quarter to deliver an economic boost going into next summer.

Beijing may have other ideas, however. The U.S administration continues to be unwilling to budge on Huawei following its blacklisting. Until that changes, we can expect Beijing to stand firm, extra tariffs or not.

Should the U.S economy continue to soften, rising inflation and a likely shift in labor market conditions would have a material impact on consumption. After all, even with tariffs, Chinese goods continue to be more competitive than U.S manufactured goods.

Both service sector activity and retail sales would likely be hit hard. In such an instance, the U.S administration would struggle to reverse such an outcome ahead of the November 2020 presidential elections.

While the welfare of U.S farmers is an important consideration, there’s far more at stake.

The Dollar

At the time of writing, the Greenback was down by 0.15% to 98.25. Market reaction to Trump’s tweets and sentiment towards the U.S – China trade war have ultimately pinned the Dollar back.

With nonfarm payrolls and wage growth figures due out later today, we can expect plenty of scrutiny and reaction.

While positive numbers may have a relatively muted impact, disappointing numbers will likely weigh heavily. Particularly when considering the pace and lack of progress in the trade negotiations.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US