The economic conflict between the United States and China, which began in early 2018, has resurfaced with renewed vigor. Former President Donald Trump's re-election in January 2025 has brought back the trade war that had previously escalated tensions between the two economic giants. The initial conflict started when Trump imposed trade barriers on China, citing unfair commercial practices and intellectual property theft. While the US-China Phase One trade deal, signed in January 2020, offered a temporary respite, the current scenario threatens to destabilize global markets again.
The US-China trade war initially escalated rapidly, leading to tit-for-tat tariff impositions. China retaliated by imposing tariffs on various US goods, including automobiles and soybeans, impacting several sectors in both countries. The Phase One trade deal required China to implement structural reforms and other changes to its economic and trade regime, aiming to restore stability and trust. However, the agreement did not resolve all issues, leaving room for further disputes.
The impact of the US-China trade war has been felt globally, with economies like New Zealand experiencing significant repercussions. As one of China's leading trading partners, New Zealand has found its economy intertwined with the changing dynamics of Sino-American relations. The uncertainty surrounding the New Zealand Dollar (NZD) reflects this complex relationship, as it remains susceptible to shifts in US-China economic policies.
The Kiwi pair, representing the NZD/USD exchange rate, has been influenced by the ongoing trade tensions. The US Dollar (USD) has been under pressure due to the receding risks of a global trade war, providing temporary support to the Kiwi pair. Despite this support, technical indicators suggest a bearish outlook for the Kiwi pair. The 20-week Exponential Moving Average (EMA) near 0.5800 is sloping downwards, indicating potential declines. If the Kiwi pair breaks below the 13-year low of 0.5470, it could fall further to near round-level supports of 0.5400 and 0.5300.
The US Dollar Index (DXY) recently refreshed its weekly low near 107.40, reflecting the ongoing uncertainties in global markets. Despite this, the private sector in the United States hired 183,000 workers in January, surpassing estimates of 150,000 and significantly higher than the prior release of 176,000, revised from an initial 122,000. This positive employment data provides some relief amid concerns about global economic disruptions.
President Trump's pledge to impose 60% tariffs on China has reignited fears of a prolonged trade war. His return to office on January 20, 2025, marks a continuation of aggressive trade policies that could further strain international relations. The resumption of the US-China trade war is likely to result in tit-for-tat policies that disrupt global supply chains and affect the broader economic landscape.
The consequences of the trade war extend beyond bilateral relations, impacting global spending patterns and investment decisions. The reduction in spending, particularly in investment sectors, directly feeds into Consumer Price Index inflation, affecting economies worldwide. As nations grapple with these challenges, policymakers face tough decisions to mitigate the adverse effects on their economies.