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America’s New China Tariffs Up Economic Uncertainty

 

Although it may have looked like China and America were inching closer to a trade agreement, the relationship now seems more strained than ever as President Trump this week announced $200bn worth of new tariffs on over 5700 categories of goods imported from China. The new taxes came into play at midnight today (Friday, 10 May) with a hike from 10% to 25%.

The two nations have been sparring for several weeks now, with a rift appearing over the weekend.  Tensions escalated on Wednesday when President Trump announced that China had broken the trade agreement and means that the two largest economies are once again embroiled in a trade war.

As a result of the renewed tensions, the Dow dropped 400 points twice this week – equity markets are feeling the pinch and stocks are suffering from the renewed volatility. Even across the pond in Europe, the repercussions are starting to ripple, with France saying the trade war was the “single biggest threat to the global economy” and British Prime Minister Theresa May said to be concerned about the latest events with No 10 saying “no one benefits from a trade war.” No one perhaps, other than those reacting quickly and investing in gold.

Saxo Bank’s head of commodity strategy, Ole Hansen says that gold is benefitting from the international dispute saying, “The combination of weaker stocks, rising volatility and a softer dollar especially against the Japanese yen have triggered renewed demand.” The analysis also points to an escalation in market volatility and warns more could be on the horizon, noting “With the net-short representing 40% of the total open interest of the futures contract versus 26% during the last peak, the market has been left exposed to additional short-covering if the uncertainty rises further.”

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