Trade wars between the US and China are intensifying. As the Trump administration found, the ramifications of China’s rare earths monopoly are extensive. This one, especially, is a critical strategic resource for the nation’s technology and defense industries. China’s export monopoly on solar tech could be weaponized later as the dynamic shifts. This could be extremely dangerous to global markets and economic stability.
The backdrop of these tensions is further complicated by the United States’ recent history. A pending government shutdown has delayed the release of several important economic indicators. This comprises all-important tier-1 data that analysts require for their decision-making. Given that this US inflation report, retail sales figures and jobless claims numbers are all pushed back by this shutdown. This delay introduces a lot of uncertainty for any investor. They anxiously await all sorts of insight and intelligence that potentially shapes monetary policy, as well as market action.
Compounding these challenges, President Trump and Chinese President Xi are slated to meet in South Korea at the end of the month. This meeting is generating real excitement. Markets are waiting, hoping for an amicable resolution that would avoid a potentially costly descent back to high tariffs. If implemented, this will be a massive increase to 145% tariffs set to take effect on November 10th. This latest jump will add more tension to trade relations between the two economic powerhouses.
The need for a diplomatic resolution becomes clearer as US-China trade war escalates. If ignored, these tensions might create the conditions for a powerful de facto trade embargo. Economic analysts are quick to point out the extensive economic interdependence between both countries. They further warn that any further escalation would seriously damage their respective economies and negatively impact global supply chains and markets.
In reaction to these increasingly hostile trends, the Federal Reserve is widely expected to cut interest rates this month. Many analysts predict another rate reduction in December, as the central bank seeks to support the economy amid growing uncertainties. The Fed’s actions will be closely scrutinized in light of the delayed economic data and the potential ramifications of renewed trade tariffs.