Trade tensions have been a key apprehension for equity investors in 2018. Last week, we saw some progress when the US and Mexico reached a new agreement. However, Canada still hasn’t agreed to the revamped NAFTA. President Trump notified Congress about signing the trade agreement with Mexico. The trade agreement will replace NAFTA.
This week is another crucial week for investors amid the trade spat between the US and its trading partners. While the talks between Canada and the US are expected to continue this week, President Trump could also move forward on the threat of imposing tariffs on $200 billion worth of Chinese goods. Previously, China retaliated in a similar fashion when the US (QQQ) imposed duties on Chinese products.
If President Trump actually goes ahead with tariffs on $200 billion worth of Chinese products, China (FXI) would have to look at other alternatives to retaliate. China only imported ~$130 billion of US goods in 2017, so it can’t impose “tit for tat tariffs” if PresidentTrump follows through with his threat of additional tariffs on Chinese goods. Several US companies including Apple (AAPL) and Ford (F) have significant operations in China. The country also has a vast holding of US Treasury securities (SHY).
President Trump has also raked up the tariffs on European auto exports. European Commission President Jean-Claude Juncker and President Trump talked in a conciliatory tone after their meeting in Washington, DC, in July. President Trump lashed out against the European Union. He said that the region’s trade policies are “as bad as China,” according to Bloomberg.
Next, we’ll discuss how China is trying to bolster its economy amid the trade war with the US.