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Does Donald Trump Think He Has the Upper Hand?

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Jun. 21 2018, Published 3:47 p.m. ET

Trade tension is set to escalate

Donald Trump added fuel to the trade war fire by announcing that the United States would extend 10% tariffs to $200 billion of Chinese (GXC) imports if China retaliates in response to Trump’s previously announced tariffs on $50 billion of Chinese imports. This announcement was a result of China (FXI) suggesting that it would match any US tariffs imposed on Chinese imports.

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Does Trump think he has a better hand?

Whereas Trump’s response suggests he has the upper hand, that does not seem to be the case. Although it’s true that the United States has a large trade deficit with China, tariffs are not something China (YINN) is likely to accept. China has already announced retaliatory tariffs on US exports to China (MCHI), matching US tariffs levied on Chinese imports. A full-blown trade war could erupt, which likely wouldn’t be beneficial to either party or global trade.

Uncertainty could hurt investor sentiment

The recent escalation in trade tension could pose risks to global growth in future months. Global markets (TLTD) have already displayed displeasure toward the escalated tension, with most indexes shedding recent gains after the Trump administration’s announcement last Friday. In the next part of this series, we’ll explore possible scenarios resulting from trade war escalation.

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