Apr 10, 2018

Trade Wars Are Good... And Easy to Win! Not When you are Facing the Chinese...

The trade war initiated by President Trump escalated in the month of March as he instructed the US government to devise a plan and impose a tariff on $50 billion dollars worth of goods targeted at China. Unfair trade practices, stealing of US technology and intellectual properties are some of the reasons stated for the implementation of the tariff, in an attempt to narrow the $385 billion trade deficit with China.  In retaliation, the Chinese government implemented a 25% on 128 U.S. products, ranging from wine to soya beans. As of now, the proposed tariffs are just threats which will only be implemented come June 2018. Meanwhile, diplomats from both countries scramble to nail some form of agreement together, in order to let both superpower retreat from a devastating trade war with their face intact. Meanwhile, President Trump and President Xi took to the media to denounce the unfairness of the treatment to their respective countries.

While US list of proposed items to be included in the tariffs are items that will least affect the US consumer (flamethrower.. anyone?), the Chinese aim for items such as soyabean and agricultural products that will erode the support of President Trump, who gain most of his political strength from farmers and workers from the rust belt.

Refusing to back down, President Trump upped the stakes by asking for another $100 billion in additional tariffs against China. The series of Tit for Tat is extremely unpleasant for the financial markets and needless to say, led to a sell offs in the stock market.

As a result of development on an almost daily basis, the stock market swings from positive to negative on a daily basis with no one having a good idea how the whole trade war saga will pan out. Most analysts believe that US and China will be able deescalate the situation and come to an agreement before the deadline of the implementation of the tariff is up. However, as with any policy that has got to do with President Trump, it will be relatively hard to predict what he will do next and this can potentially destabilize the stock market and push global stock market into a bear market.

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