US And China Trade War Escalates. What Are The Implications?

US And China Trade War Escalates. What Are The Implications?

What is the Situation?


On Friday, 23rd August, Trump said in a tweet that U.S. companies “are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. ” It was not immediately clear under what authority or how the president could implement such orders. On the same day, China announced plans to impose additional duties on $75 billion worth of American goods on Sept. 1 and Dec. 15. In response, U.S President Donald Trump tweeted later that day his administration would also raise tariffs on $550 billion of Chinese imports. The latest round of tariff announcements in the last few days means that by the end of the year, essentially all Chinese goods exported to the U.S. will be subject to duties based on sources from CNBC.

Would China be greatly affected?

According to CNBC, although that adds to the burden on Chinese companies, which already face pressure from a slowdown in the domestic economy, data and other analysis indicate businesses in the mainland are finding ways to remain resilient — even if it sometimes means absorbing the costs of tariffs.

China is bolstering its own businesses in 4 ways: Increasing government support, Opening channels to other international markets through programs such as free trade zones and the Belt and Road Initiative — a Beijing-led massive infrastructure project, developing a higher-quality operating environment for state-owned and foreign enterprises and Implementing policies such as tax and fee cuts.

Chinese companies could gain greater market share, at the expense of U.S. businesses. Already, data and company reports indicate how Chinese companies are shifting agricultural purchases away from the U.S. to other countries, especially those in Latin America.

What are the actions taken by US to counter this move by China?

In a series of Friday, 23rd August evening tweets, Mr Trump said the US would raise its tariffs on $250bn of Chinese imports from 25% to 30% starting on 1 October. The move came hours after the president hit out at Chinese plans to hit $75bn (£61bn) of US goods with duties. He also said planned tariffs on $300bn of other Chinese goods will now be 15% instead of 10%.

President Trump unveiled the 10% tariff plan on 1 August – blaming China for not following through on promises to buy more American agricultural products. Those tariffs, imposed on items like electronics and clothing, were expected to be introduced at the beginning of September but some have been delayed until mid-December to avoid hitting US Christmas shoppers.

The latest developments in the trade war have sent global financial markets tumbling. Mr Trump has also said he had “hereby ordered” American companies to look for alternatives to China and suggested they make products in the US instead based on sources from BBC. On top of that, Straits Times also reported that Donald Trump acknowledged having second thoughts on escalating the trade war with China, he also quoted “I could declare a national emergency. I think when they steal and take out, and – intellectual property theft, anywhere from US$300 billion (S$416 billion) to US$500 billion a year, and where we have a total loss of almost a trillion dollars a year… in many ways, that’s an emergency,” he said.

How will this affect the Asia market?

Stocks in Asia fell Monday, 26th August morning following an escalation in the U.S.-China trade war late last week. Oil prices dropped in the morning of Asian trading hours, with international benchmark Brent crude futures slipping 1.5% to $58.45 per barrel and U.S. crude futures dropping 1.9% to $53.14 per barrel.



HSI has dropped 2.82% since last Friday, 23rd August.

What are the possible safe havens?

According to CNBC, the Japanese yen, often viewed as a safe-haven currency during times of market turmoil, traded at 105.22 against the dollar after touching levels above 106.2 last week. Similar gains was seen elsewhere in the morning of Asian trading hours as investors headed toward defensive plays such as spot gold, which jumped 1.15% to about $1,543.68. The yield on the closely-watched 10-year Treasury note fell to 1.4879%. Bond prices move inversely with yields.


Gold price has increased 3.07% since last Friday, 23rd August.

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