As drawn down and repetitive have the recent headlines become about tariff impositions, trade agreements and currency manipulations they nonetheless cause uncertainty & unwarranted market reactions – which is not good for the general health of the markets and any economy in the long run. For a technical trader like me it becomes extremely challenging since markets start moving more like a pendulum exhibiting whipsaw movements. Anyways not here to talk about trading but the general trade tensions that have escalated recently with the imposition of tariffs by the U.S on a host of other trading partners.
The role of trade organizations like WTO (World Trade Organization) has become increasingly difficult since the bickering parties are lodging claims against each other for violations – it came to a point recently where the U.S. President threatened to pull out of the WTO before deciding otherwise – for now. However, The U.S. has filed separate claims with the World Trade Organization against China, the EU, Canada, Mexico and Turkey after the countries lodged complaints over the Trump administration’s steel and aluminum tariffs. You see where this is going. Let’s take a look at how the trade war unfolded the imposition of U.S. tariffs
It is pretty evident from the chart that most of the countries were not intimidated by the arm twisting trade policies of the U.S and immediately retaliated with their own tariffs on U.S goods. Bilateral agreements between two countries might become key to the Global trade moving forward if the current tariff regime doesn’t prove to be temporary. Not to say there aren’t efforts going on to save the Free trade regime.
Declaring themselves the “flag bearers of free trade,” Japan and the EU have signed the world’s largest bilateral trade pact covering about a third of global GDP. The deal, which involves significant concessions on both sides, will eventually reduce heavy Japanese tariffs on European wine, cheese and other foods and lift EU tariffs on Japanese cars and vehicle parts (#SeekingAlpha). A similar trade agreement is also waiting for approval between Canada & the EU called the CETA. It just makes me wonder why can’t they negotiate similar agreements with the U.S. – it might be a good thing after all. Doesn’t that saying “You scratch my back and I will scratch yours” stand true here – after all it is business.
Rather than that happening, the trade war seems to have taken another dynamic where China, who had initially said it would not use the currency as a tool in the ongoing trade friction between the two largest economies of the world has led the Chinese Yuan to its lowest level since 2015 (not that it Yuan is not already controlled by the government). Well guess what earlier today U.S. President came out and criticized the move & commented about U.S interest rates, inadvertently causing the Greenback to get knocked off the 10 month highs against Majors, which BTW is not a bad thing since a weaker dollar would be good for the U.S exports.
I don’t know where this is going to stop, but at some point everybody would realize that this trade war mongering, arm twisting & currency manipulation is not going to help anyone. And the markets continue to suffer the most hated uncertainty. The biggest loser at the end of the day from all this mayhem – The Global Economy!