A new round of trade war: duties, restrictions, prospects

After a long lull in the trade war between the United States and China, the US President D. Trump announced on August 1 new duties on Chinese goods. They will enter into force on September 1 and will amount to 10% of the volume of $ 300 billion. Trump argues this decision with China’s reluctance to buy American goods and adhere to trade agreements.

Read also: “The risks of a trade war are back”

Later, Trump’s radical position regarding new duties weakened. Stating that the United States could defer or cancel new duties if China starts to fulfill trade promises and continues negotiations. There was no official response from China, except for criticism.

Impact on the market and currencies

Against the backdrop of such statements by the US president about the resumption of the US – China trade tension, the Chinese yuan and the US dollar came under pressure. A significant collapse was shown by world stock exchanges and the oil market, which was associated with fears of a further slowdown in the global economy.

Also on the fears of a trade war, the US stock index DOW and 10-year US government bonds yield were under the pressure. So, the US industrial index DOW slowed the two-month upward trend on this statement and updated the July’s low.

But, despite the market reaction already taking place, the aggravated trade confrontation carries risks. Especially worth noting is the lack of reaction from China. China, in response to US $ 300 billion in duties, cannot apply proportionate retaliatory duties.

Several significant actions at once may be as China’s answer.

• So, China may stop buying American oilseeds, which are seasonal commodities. What will cause an additional blow to the US agricultural sector. Earlier, China has already reduced purchases of American soybeans.
• Separately, it is worth to highlight the US engineering sector. China may also return duties on American cars and parts. In this case, the American company Boeing may be under significant pressure. Following the Boeing crash scandal, the states are negotiating with China about the purchase of aircraft.
• And finally, there is the possibility of restricting China’s purchases of the US energy. First of all, liquefied natural gas (LNG), whose supply has increased in the global market.

Despite the aggressiveness of the trade war, China’s position looks more profitable. Since in this situation, time works for China. Thus, it will be much more difficult for President D. Trump to win the US presidential election in 2020 with an intensified trade confrontation.

Anton Hanzenko