1. Newsroom
  2. Trade War Update
Menu
Expertise 10.07.2018

Trade War Update

Trade War Update

Asia Macro Strategy (10.07.2018) - The trade war that started last Friday (July 6th) has been well anticipated. The US initially imposed tariffs of 25% tax on US$34 billion worth of Chinese goods. The next US$16 billion will be announced in two weeks, according to US President Donald Trump.


China’s response was surprisingly restrained – they only confirmed equal value retaliation later in the day.

Markets remain calm

Markets have priced in the worst and remained relatively calm in the aftermath of Trump’s first trade strike. Market sentiment can be seen in the better US and European data released then.

China’s central bank has also importantly stabilised the USD/CNY at 6.65. If the two nations do not increase their trade threats until the next US$16 billion as planned, the market may see a bit of relief on trade war news.

US’s first strike will mostly affect China’s exports of auto and parts, medical and aircraft equipment, technology and hardware, including LED. On the flip side, China’s retaliation will hit American exports of soya bean, poultry, seafood items and certain fruits, as well as sports utility vehicle (SUV) cars.

The greatest concern is soya bean as it is the main feed for pig farming. They are integral to pork prices which is a key staple food in China’s CPI basket. Another broader concern is not just the impact on US and Chinese firms, but also on many other foreign companies, especially those using China’s intermediate goods for their production.

History of trade disputes

China and the US have arguably had four major rounds of trade disputes between 1987 to 2009, most of which centred around intellectual property protection.

The trade ‘war’ dragged on until February 1995 when it was resolved by the US removing the 301 Investigation after a visit to China by the US Energy Secretary and a group of high-level US businessmen. Tariffs were eliminated as China also expanded its shopping list of US products and agreed to close down a controversial factory in Shenzhen.

The US actually supported China’s entry into the World Trade Organization in 2001. However, in the years after China became a member, the US complained on numerous intellectual property right issues. The US administration has had a very weak monitoring system which is what President Trump referred to when he said: “I don’t blame China, but past US administrations”.

The world will move on

The bottom-line here is that trade disputes can linger for a long while, but the world economy will still move ahead. There is an unconfirmed report stating that the US will not impose tariffs on European cars, granted Europe does the same to American producers.

World GDP growth should still be quite decent, as long as trade ‘battles’ remain restrained and do not turn into a full-blown global trade war as they have in the past. It shouldn’t be too far off from our base-case forecast of around 3% in 2018.

More about Market Insight

CHAN-Anthony_150x150.jpg

Anthony Chan
Chief Asia Investment Strategist

 

Expertise

Swiss & Global Equities

Why Swiss equities now? This market offers equity investors the stability and agility they need to navigate this volatile period. 

Read more
Expertise

European Equities

European equities offer unrivalled opportunities in terms of breadth of sector and market exposure.

Read more

Actualités les plus lues

Expertise 01.10.2020

Covid-19: Restez informés avec l'UBP

Depuis l’apparition du coronavirus, l’UBP accompagne et soutient ses clients dans le contexte inédit de cette crise sanitaire mondiale. La Banque vous informe régulièrement de l’adaptation de ses dispositifs aux règles de précaution fixées par les autorités et partage avec vous les dernières analyses de ses experts sur les conséquences de la pandémie pour l’économie mondiale et les marchés financiers.

Expertise 24.11.2020

Des joyaux cachés parmi les SMID Caps suisses et européennes

Les sociétés de petite et moyenne capitalisation («SMID Caps») affichent traditionnellement des taux de croissance et des rendements supérieurs sur le long terme en comparaison des grandes capitalisations. Il est en effet plus facile de générer une croissance dynamique à partir d’une plus petite structure. Par ailleurs, les SMID Caps suisses et européennes offrent généralement aux investisseurs une exposition idéale aux grandes tendances de croissance séculaires.

Expertise 17.12.2020

UBP Investment Outlook 2021

Le Meilleur des Mondes


A lire également

Expertise 27.01.2021

From Paris to Glasgow: the return of the US to the climate fight

President Joe Biden has taken the US back into the Paris Agreement framework. While time has been lost, CO2 emissions are down over the last five years and the new US administration will push climate action up the agenda and build upon policies already enacted by corporates and at state and local levels. 

Expertise 25.01.2021

DCEP may play a key part in China’s long-term economic transition

China’s Digital Currency Electronic Payment (DCEP) could launch as soon as 2022, with a series of pilots already in place to test its use in basic services, e-commerce and cross-border payments.

Expertise 21.01.2021

Vaccines: Israel and the UAE show the way forward

With vaccines to combat the global pandemic being rolled out beginning in late-December, Israel and the United Arab Emirates (UAE) have led the world in vaccinating their populations, having reached > 20% coverage by mid-January.