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According to Greg Gibbs, Analyst at Amplifying Global FX Capital, the real economic impact of US trade restrictions is a complex task, but the immediate presumption is that it will reduce trade flows and slow global growth.

Key Quotes

“The market reaction so far suggests that China and its Asian trading partners that form part of a highly integrated supply chain have more to lose than the USA.”

“However, the USA economy is not expected to be a net winner from a trade war.   China is not without market clout, and tariffs increase costs on the US economy.”

“As such, bond yields globally are somewhat lower and global equity markets are weaker.   Asian equities have been hit the hardest in the last week.   Asian currencies have also been relatively weak.”

“Weaker currencies should help Asian economies absorb the downside risk from a trade war, helping bolster after tariff export returns, and helping them compete in a diminished export market.”

“It is too early to know if the further depreciation seen in the last week is enough.   The risk is that Asian currencies continue to weaken beyond what might ultimately be justified by the trade war as investors seek to avoid the greater uncertainty.”

“Uncertainty over the economic impact is compounded by the wide range of potential retaliatory measures, and policies to compensate for weaker potential growth.”