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Trade War Gets Ugly as President Trump Ups the Ante

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Trade war

Yesterday, President Trump imposed a 10% tariff on $200 billion worth of goods from China. For now, tariffs don’t yet cover Apple (AAPL) smartwatches and some other consumer products. While the tariffs are a somewhat toned-down version of what Trump previously threatened, they have nevertheless hurt sentiments. Trump also warned China that “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports” if the country retaliated against the tariffs. China has previously retaliated against US tariffs with tit-for-tat measures.

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Commodities

While US markets have been strong this year, with the PowerShares QQQ ETF (QQQ) still hovering near its all-time highs, Chinese equity markets (FXI) have been weak. However, the commodity space has seen divergence this year. While base metals like copper and aluminum have been in a free fall on concerns over the Chinese economy amid its trade spat with the United States, energy prices (XLE) have been strong. The looming sanctions on Iran are among the key factors supporting energy prices. Meanwhile, gold (GLD) isn’t having a strong run either, as rising US interest rates lower its safe-haven appeal.

In the next article, we’ll see whether the tariffs could help bring China to the negotiating table.

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