US-China Trade War

What was Friday all about?

Friday was a day to remember for the global economy and the markets in particular, as President Trump threatened a "massive increase" of tariffs on Chinese goods, and accused the nation of turning "hostile" due to export controls. He also said that "there was no reason to meet President Xi" at the APEC summit in South Korea in two weeks. Not surprisingly, US equities tumbled along with a sharp selloff in cryptocurrencies and crude, with bullion benefiting as the new bout of uncertainty acted as a tailwind. Elsewhere, the response from China was swift, as the nation threatened retaliatory action, but also maintained that it preferred a conversation to address the issue.

How severe was the tariff threat?

Trump threatened to impose 100% tariffs on Chinese goods and restrict US software exports, starting November 1st.

What's happening now:

Fast forward to today, and the fire looks to have been doused somewhat. US index futures and cryptos have rebounded, but Asian stocks are a sea of red. President Trump's administration is open to a trade deal with China, but they remain concerned about export controls. The Oval office believes that the US has more power in this trade dispute and urged China to be reasonable. Trump himself hinted at a possible solution for President Xi, while also suggesting that a full trade war would hurt China.

What does this imply?

The statements suggest that the US wants China to reverse its recent trade action. Calming the markets is also necessary, after the volatility spike that was witnessed. Economists believe that both sides might back down from aggressive policies and continue down the path of talks. Meanwhile, Vice President Vance emphasized that the US has a lot of leverage and hopes China chooses a reasonable path, warning that cutting off global access to their goods would threaten their relationship.

Where to from here?

Both countries have been involved in a trade dispute before, with tariffs reaching high levels before a deal was struck. The coming weeks will reveal whether China wants a trade war or prefers a reasonable resolution. For now, the needle is pointing toward the latter.