Trump Fires Fresh Shots In Trade War

7 May, 2019

Risk markets were sent reeling at the start of the week as traders reacted to the disappointing news that President Trump is threatening fresh tariffs on China.

Trump announced that the current raft of $200 billion worth of Chinese goods, which are currently under a 10% tariff, will now be levied at 25% as of Friday.

What About the “Epic Deal”?

The announcement comes as a stark surprise for the markets given the ongoing trade negotiations taking place between the US and China. 25% levies were due to be introduced in January but following a truce agreed upon at the G20 summit in November last year, the start date was postponed until March 1st while both sides engaged in talks.

In response to positive developments within those talks, Trump then postponed the March 1st deadline to allow for further talks which, according to reports, had been progressing well. Indeed, Trump himself said recently that he expected to achieve an “epic deal” within four weeks.

Chinese To Retaliate or Negotiate?

The move has immediately provoked concerns that trade talks between the two economic superpowers will now likely collapse. China is highly unlikely to continue with negotiations if Trump presses ahead with these tariff hikes. In fact, even the threat of such action will likely see Chinese delegates refrain from flying to Washington this week for the next round of talks.

Global Growth Concerns Resurface

The news has been received with disappointment across the board. The prospect of a further ratcheting up in trade tensions between the US and China threatens to weigh on world growth further.

World growth was knocked significantly lower last year as the trade war between the two countries raged. Markets were heavily uprooted by the escalation in trade tensions. This led to an acute collapse in equities prices into the end of last year.

Trump Tactics Back in Action

The move is clearly a positioning tactic by Trump looking to force China into agreeing on a trade deal. For now, the market waits for an official Chinese response. Over the course of last year, each time the US pressed ahead with further tariffs, China retaliated in kind.

However, given the potential negative impact of Trump’s proposed tariffs, China might be keen to come to the negotiating table in a bid to avoid such tariffs from being implemented.

Technical Perspective

After trading above the 2939.87 level last week, to print fresh all-time highs, SPX500 has since reversed sharply. A subsequent retest of the level from beneath saw sellers defending the level and turning price lower. The market is now en-route to test the next key structural support at 2872.76, the broken January 2018 high. Further support comes in just below at the 2855.12 level. While above these two levels, focus remains on further upside.

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