The US Trade War Is Going to Grow Into a Real Economic Slaughter
WASHINGTON, DC — June 20, 2018
As we reported before the World trade war has entered into the “hot phase.” This will have a strong market impact, analysts say.
China's Foreign Ministry said it was the US who 'has initiated a trade war,' — but it's not afraid of one either. Beijing was responding to news that U.S. President Donald Trump's administration is looking to impose fresh tariffs on products from China. Earlier the U.S. announced that it would impose a 25 percent tariff on up to $50 billion of Chinese goods. Tariffs on an initial list of goods worth some $34 billion will kick in on July 6.
Trump has requested the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent.
But it looks like China is not in the mood for surrender or compromise. It looks like they are ready to fight back, imposing not only equal sanctions but additional ones as well to punish the Americans for their insolence.
At the same time the EU has introduced "rebalancing" tariffs on about 2.8 billion euros' ($3.4 billion) worth of U.S. steel, agricultural and other products, including bourbon, peanut butter, cranberries and orange juice in response to President Donald Trump's decision to slap tariffs on steel and aluminum imports from Europe.
Meanwhile, many experts believe that Trump has decided to wage a trade war during a historically difficult time for the stock market.
The situation in the financial markets is even worse. As central banks tighten policy, global markets just lost their goalie. "You've got the ECB saying we're going to stop buying bonds at the end of this year, the Fed's been shrinking its portfolio," said Wells Fargo's Michael Schumacher. "Who is the support? Or, if you want to think about it in World Cup terms, who's the goalie?"
This does not mean that the goalkeeper left the field forever, but right now the FED and the ECB is clearly failing, and it does not add to investor's confidence in the dollar and the Euro.
Schumacher anticipates a total of four rate hikes from the Fed this year, bringing the fed funds rate from 2.25 to 2.5 percent. Markets are pricing in the next 25-basis-point increase as soon as September, according to CME Group fed funds futures.
In addition, China could use US bonds as an instrument of economic pressure in the trade war. If China will merge its bonds, the US could face a real financial disaster.
So let's just put this straight: the weather continues to deteriorate, and a severe financial storm is getting closer every month.