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Monday, 9 July 2018
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What Happened? The Trade War Explained

 The markets so far seem unconcerned that the tit-for-tat China-US tariffs introduced on Friday.

  • The US imposed a 25% tariff on $34 billion worth of Chinese imports on Friday which includes 1,300 Chinese industrial and other products, 9 percent of its total imports from China in 2017. Solar panels and washing machines have been targeted by Trump.
  • The Chinese immediately retaliated with a tariff on $34 billion worth of US goods - cars, soybeans and lobsters in the firing line. Their list of proposed duties on $50 billion worth American imports accounts for 36.7% of the total imports from the US last year.
  • China say they were forced to retaliate, accused the US of triggering the “largest-scale trade war in economic history”, that China would never start a trade war and that “Trade war is never a solution”.
  • Trump says the trade war is the result of intellectual property theft, barriers to entry for US businesses and a $375 billion US trade deficit with China. This is a chart of Chinese exports to the US (orange) compared to Chinese imports from the US (blue). The gap between the two represents the US trade deficit with China.

  • China have lodged a case with the World Trade Organisation against the US with the Chinese commerce ministry calling the US actions “a violation of world trade rules”.
  • Chinese state media called Trump’s administration “a gang of hoodlums”. The Chinese economy is forecast to lose 0.2% of GDP growth courtesy of $50 billion worth of US import tariffs on Chinese goods.
  • Ford have said that they will absorb the tariff increase for cars exported to China. BMW have said that they can’t completely absorb the tariffs and will have to raise prices.
  • Trump is threatening an additional 10% tariff on $500 billion worth of Chinese goods.
  • Trump under some criticism at home because tariffs hurt farmers, ranchers and aircraft manufacturers as well as American consumers.
  • At this point there is no sign of renewed negotiations between the US and Chinese trade officials.
  • Companies can seek product exclusions from tariffs on Chinese goods imported into the US over the next 90 days.

Short-term market fortunes depend on whether the tariff war escalates. Trump’s threat to impose a 10% tariff on up to $500 billion worth of Chinese imports is now the issue. That would pretty much cover all Chinese exports to the US. It is interesting that the US market has continued its go up whilst the Chinese market is now down over 20% from the highs in January.

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