The markets have reacted to the US-China trade war with some gusto on Tuesday as the US and China are talking tough on retaliation and the risk is that they implement wide-ranging tariffs and engage in an all-out trade war, explains Greg Gibbs, Analyst at Amplifying Global FX Capital.
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“It is possible that, hit with a potential backlash in their domestic financial markets and economic outlook, they decide to come together and walk-back on the threats. However, it is far from clear that either side will back down.”
“In fact, Trump and his advisors appear to be fully prepared to escalate, believing they are better placed to win a trade war and force concessions, willing to dig in for the long haul and accept some domestic economic fallout.”
“Furthermore, the USA may yet turn its attention to tackling its other big trade deficit with Germany. The administration is currently investigating using national security as a basis to raise tariffs on European cars. This may take well into next year, but it appears that the US is still looking to expand its tougher trade policy, not rein it in.”
“The horse may have already bolted the gate, and it seems a bit late to start selling assets at risk of a trade war, but it is far from clear there will be a quick recovery. The risk is high that the trade war deepens as tariffs are implemented.”
“The USA is still planning on announcing investment restrictions aimed at preventing Chinese companies from gaining access to US technology by the end of the month.”
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