The U.S.-China trade war has ratcheted up to billions. Both countries are engaged in a full-blown tit-for-tat retaliatory tariff rollout, causing chaos in global markets. The U.S. federal government started this most recent round by placing a base 10% tariff on every good imported into the U.S. China retaliated with an equally eye-popping 34% tariff on U.S. exports. This move constitutes a major new step up in their bitter, tit-for-tat trade war. The ongoing retaliatory exchange of punitive tariffs has raised concerns about their likely negative effect on U.S. equities markets. These worries spread to the global economic picture more broadly.
The United States wasted no time in escalating its own trade response. It recently proclaimed a new 50% tariff on imports. China responded a couple of weeks later with their own 50% tariff on U.S. commodities. In retaliation, the Chinese government has retaliated with an equally extraordinary 104% tariff on over 150 different categories of Chinese products. This brazen act has drawn blistering reaction from all sides. China retaliated by placing a punitive 84% tariff on U.S. exports. This action added a thick double knot to the noose already tightening around trade relations between the two economic heavyweights.
The Trade War Intensifies
Now, as both countries continue to take tit for tat actions on each other’s imports, the damage from this inevitable trade war is rearing its ugly head. Economic critics note that increasing retaliatory tariffs are heating an already tense trade war. Each country seeking to counter the other in an endless loop of tit for tat. These tariffs only serve to inject more uncertainty into the marketplace, for both businesses and consumers. This unreliability is driving up costs and disrupting the flow of goods.
The U.S. tariffs have not just been more targeted on specific goods but have overall affected a deep breadth of industries. This wide-ranging approach is meant to signal a growing strategic effort by the U.S. to pressure China into compliance on a number of different trade-related issues. China’s swift countermeasures indicate that it is equally committed to protecting its economic interests, setting the stage for a prolonged standoff between the two nations.
Initially, the growing nationalistic wave of tariffs was met with fears and worries on what the long-term effects would be to both countries’ economies. Most economists caution that sustained escalation could limit the amount of trade and increase the price consumers pay for goods. This scenario would eventually reduce potential economic growth in both countries.
Impacts on Markets and Currency
It is the U.S.-China trade war. Further putting downward pressure on the U.S. dollar is the ongoing trade war. So investors are understandably reacting to this bilateral uncertainty around trade relations with China. The dollar’s value has fluctuated in response to the evolving tariff landscape, leading to concerns that continued tensions may weaken its standing in international markets.
The close of the EUR/USD currency pair has been a huge range. For the last month or so it has been trading higher, recently breaking above the 1.1050 level. A growing contingent of market participants view the euro as a more secure option given the tumult under U.S.-China trade tensions. With tariffs escalating and talks stalled readily, currency is under traders’ scrutiny. They are concerned with the potential effect of these changes on emerging global patterns of trade and investment.
Moreover, the enactment of across-the-board tariffs on imports from multiple countries has exacerbated the unpredictability. The U.S. government announced a 20% tariff on European Union imports, compounding the effects of tariffs already imposed on China. The cumulative tariff rate on China is now 54%, following last week’s announcement. We untangle this abrupt and enormous increase and explore its implications for bilateral trade and international economic relations more broadly.
Future Outlook
Since the beginning of the trade war, economists have warned about its long-term impact on the overall global economy. From the US side, President Trump has made recent strides to solidify the administration’s commitment to a long-term clash. As of now, there appears to be no solution coming down the pike. Continuing uncertainty would strike a tremendous blow against the happiness of U.S. equity markets. Investors are still trying to adapt to the reality of increasing costs and constricted access to the market.
These growing tensions have already begun to impact investor sentiment. Many market analysts believe that sustained volatility may deter investment in both U.S. and Chinese markets, leading to an overall slowdown in economic activity. As businesses adjust to new cost structures and consumers face rising prices, the potential for economic contraction becomes more pronounced.