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US-China trade war steps up a notch

Following Donald Trump’s newest round of tariffs on Chinese imports, whereby the US has imposed duties on more than half of all Chinese imports, Beijing retaliated by slapping new tariffs on $60bn worth of American goods, while scolding the US president for a lack of “good faith”.

Despite the vexed words from Chinese officials, the new tariffs were less than originally threatened. President Trump also left the door open to negotiations, announcing a 10 per cent duty on Chinese imports, threatening to increase it to 25 per cent next year if no trade deal was reached.

Both sides have therefore left the door open for manoeuvre, with the tariffs not seen to be crippling on both economies at present. Chinese equity markets have borne the brunt of the rift, with the Chinese equity index down almost 18 per cent from the beginning of the year. On the other hand US stocks keep hovering around all time-highs, buoyed by technology stocks.

President Trump has been most irate over the apparent Chinese attempt to attack US farmers, ranchers and industrial workers who are largely regarded to have been fundamental to his election. On paper it would appear that the Chinese are the biggest losers in a drawn out trade war, as China imports less from the US than vice versa. US exports to China last year totalled about $130bn, compared with Chinese exports to the US valued at more than $500bn.

The tit-for-tat tariffs between the world’s two largest economies have unnerved leaders worldwide since they helped spark jitters in emerging markets and threatened to exacerbate a slowdown in more mature economies outside the US. Trump in fact spared no remorse towards the European Union in one of his twitter attacks, claiming that the US has been ripped off by both the Chinese and the European Union.

President Trump himself has faced pressure back home over the backlash that the tariffs could create for American exports. Cabinet officials have argued that in their current format, the tariffs are not expected to be felt, and that they would actually buoy investment and wages, pointing towards the strong performance of the US stock market as evidence of the benefits.

Corporate America however has still decried the move as costly and counterproductive, despite the government’s decision to put off the worst of the impact until after the US retailers critical Christmas season.

The US’s ultimate goal is to balance the scales in the trade balance between the two countries, with US demanding more open markets for US exports as well as unfair subsidies, technology theft and cyber security.

Trump knows that the Chinese have a lot more to lose, and is adamant on earning victory for the American people. In the meantime, stakeholders remain hopeful that an agreement will come quickly before matters escalate further.

This article was issued by Simon Psaila, financial analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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