Gold prices, quite literally, have come roaring back, reaching well over $3,250 at the time of writing in the Asian session on Monday. This escalation comes amid surging U.S.-China tensions. Recent, confusing announcements by former President Donald Trump to impose tariffs on Chinese imports only added gasoline to the fire. As worries around US-China trade relations continue to intensify, investors are pouring into safe-haven assets like gold.
This complex relationship has been a source of turmoil in the US-China trade conflict. Inking the US-China Phase One trade deal — after almost two years of increased tensions — brought a small glimmer of hope in January 2020. Yet implementation of this agreement would have required deep structural reforms in the very foundations of China’s economic and trade regime. Recent events have shown that these trade relations are once again on a razor’s edge.
Tariff Announcements and Trade War Resurgence
Just this past weekend, Donald Trump proclaimed that he was going to slap tariffs on all sorts of Chinese-made products. This declaration led to renewed fears that a trade war would go into full swing. As Trump goes full throttle on his 2024 election campaign. As a core piece of his overall strategy, he’s pledged to slap 60% tariffs on China. In 2018, the previous administration placed trade barriers on China. He defended his actions by pointing to unfair commercial practices and IP theft.
The announcement of new tariffs has raised concerns that the US-China trade war could resume, potentially leading to tit-for-tat policies that would further impact the global economic landscape. Retaliatory measures have largely defined China’s response to US tariffs, striking hard on vital American commodities like soybeans and automobiles.
“At some point, I’m going to lower them, because otherwise, you could never do business with them, and they want to do business very much.” – US President Donald Trump
The current moment feels eerily similar to previous clashes with the two countries. Both governments are at it again, raising tensions further by slapping new tariffs on each other. Now investors are worried about the future of US-China trade relations. They are anxious to know how these reforms will shape the future of the global economy.
Impact on Safe-Haven Assets
As uncertainties surrounding trade relations mount, investors are increasingly turning to safe-haven assets, particularly gold. The metal’s value exploded, crossing the $3,250 mark. Anxious market participants hurried to find shelter from the possible economic storm clouds formed by the threat of a resurgence of trade wars. Even the US Dollar Index (DXY) registered these fears trading down -0.31% to 99.73.
Gold has historically been seen as a safe haven asset in periods of geopolitical crisis and investor unease. With Trump’s recent tariff announcements rekindling fears of a trade war, many investors are reassessing their strategies and bolstering their gold holdings.
The general relationship between the US dollar and gold prices is another example of how the tides are changing in today’s financial markets. When trade worries weaken the dollar, gold tends to appreciate. This trend acts to further cement gold’s reputation as a safe haven investment during periods of upheaval.
Future Trade Deals and Economic Outlook
Going forward, President-elect Donald Trump teased America’s next trade deals during the course of this week. But skepticism remains, in particular around whether or not meaningful agreements can be reached. This is exacerbated by the current climate of mistrust and accusations between the two countries. President Joe Biden has upheld tariffs that are already in place while imposing new ones, adding to the confusion.
A return to trade hostilities, amid continued… They caution that these reforms would do more harm than good to the flow of global trade. The uncertainties in US-China relations cast a huge shadow over any economic forecast. Instead, many are left hanging without clear communication on what their future growth prospects will be.