Trade War Impact - Talking Points:
- The trade war matter to financial markets as the U.S consumes a third of all Chinese exports
- With US tariff threats rising to $500 Billion the Yuan has weakened and raised concern over Chinese growth – though President Trump has not let up on his critique of currency and policy
- Through price action, a moving average based indicator, and option premiums, it seems USD/CNH[1] bulls have taken over
- After finding resistance at a trend-line dating back to 2011. RSI shows bearish divergence, which may indicate more weakness ahead.
Why U.S Tariffs Pose a Serious Threat to China
As President Trump enforces tariffs on Chinese goods, it is natural to evaluate who has the ‘upper hand’. While the outcome of the trade wars is unpredictable given the many moving parts, we can use macroeconomics to can weigh the baseline cost to see which economy is more dependent on trade for economic growth.
Data source: Bloomberg
Data source: Bloomberg
Currently, China exports almost a third of their goods solely to the US. Conversely, the U.S only exports 14% of their goods to China. If we account for how much each country depends on trade for GDP growth, the difference becomes clear.
China’s exports account for approximately 20% of GDP per Bloomberg. US exports account for around 12% of GDP. In other words, China has significantly more exposure to a drop in demand for their exports.
From these two measures, we can evaluate just how much is at risk in GDP terms. The US
