U.S. President Donald Trump is set to impose tariffs on $200 billion in Chinese goods on top of the $54 billion already under the new tariffs imposed by Washington. Washington is demanding Beijing improve market access and intellectual property protections for U.S. companies, cut industrial subsidies and slash a $375 billion trade gap.
The public comment period around the extra $200 billion in tariffs expired last Thursday, this allows the US President Trump to give the order for implementation at any time. The new duties are expected to hit more consumer items like furniture and lighting, car seats for children, bicycles and other sporting goods accessories.
“We know that the President has received reports that the Chinese economy is struggling, and thus he may believe that additional pressure might be effective in the short-term," Craig Allen, President of the Washington-based U.S.-China Business Council, said this week.
The uncertainty facing equity and commodity markets is how long will this last? As every economic minister agrees in principle a full on trade war no one wins as businesses suffer uncertain periods, costs of goods increase, with the potential to cause a considerable supply disruption.
The next question is how deep will this trade war cut into the bystander economies, like Australia with China it largest trade partner, keeping in mind Australia’s recent increasing GDP prints directly relate to increasing ore exports.
Any slowdown in Steel production will directly affect Australia’s mining industry.
Another area is Britain also managing its own Brexit trade negotiations with Europe.
Other emerging economies that will feel the uncertainty surrounding these 2 trade titans, US and China, are Mexico and Canada also negotiating to modernize the 1994 initiated North American free trade agreement, (NAFTA) with the US.
What is certain, the longer and harder the US push, China will at some point retaliate with an equally aggressive measure against US goods entering China.
White house advisors have effectively put the world on notice to negotiate fairer trade deals and review the existing trade agreements already in place.
This can drag out over many months to come as China is planning two choreographed celebrations of free trade – a major import fair in November and the 40th anniversary in late December of its move toward market reforms. However, Chinese government advisors are tamping down expectations either occasion will yield measures that could defuse tensions.
Trump said he was not prepared to make a deal with China "that they'd like to make."
"We'll continue to talk to China," he said.
In the Equity markets there is a real “risk off” selling event underway as the consensus is the US will become the victor in this disruptive event.
Australia’s volatility Index (XVI ) has currently increased to 15 up from the benign average of 10 a 50% increase in the expectation of future volatility.
Adding to this market volatility and global trade uncertainty is the falling Australian dollar now trading in the low 70 cents down from 81 cents against the US dollar in January this year. This will bring its own consequences for Industry and consumer dealing with current global events.
On a lighter note.
"Free trade will suffer a great setback, but it may be temporary," Yu Yongding, a commissioner and senior researcher at CASS, "Who knows for how long Mr. Trump will still be in the Oval Office?"
