The trade war between two of the world’s largest economies — US & China — got worse when the Donald Trump administration slapped another 10 per cent tariffs on $200 billion worth of Chinese goods such as fish, petroleum, chemicals, handbags and textiles. This comes on the heels of both countries imposing tariffs on each other's goods, worth nearly $70 billion, on July 6. Global markets were rattled by the escalating war as another move could derail the expected global economic growth outlook.
While Beijing did not respond with a retaliatory tariff, it is planning to use funds collected from tariffs charged on imports from US to minimize the impact of US trade restrictions on its domestic companies. Separately, the Chinese manufacturing sector is looking for alternative supplies of commodities as it has also imposed tariffs over its import.
As an impact of the trade tensions, last month’s trade surplus as per Reuter’s estimation reached a record high of $28.97 billion which in May was $24.58 billion. As per China General Administration of Customs, China’s June exports rose 11.3 per cent y-o-y and is also higher than May’s gaining levels of 12.6 per cent. For the six-month period from January to June 2018, China’s trade surplus rose to $133.76 billion as compared to $117.57 billion in the same period last year.
Impact of trade war
The ongoing trade dispute has heightened worries in the global markets of derailing the expected global economic growth outlook. Chinese stocks are currently trading in bearish zones and the Chinese currency Yuan is taken a hit. The market expects trade flows to slow down, which means demand support to base metals will be weak in the second half of the year. China is the world’s largest metal consumer and any measure on its export will automatically reduce the volumes of intake from its industrial sector. Hence the aggressive stance of US is going to hurt the demand side fundamental outlook, but at the same time any of the supply shrinkage could lend some support to the prices.
The author is a fundamental analyst at Karvy Comtrade