Talking Points:
- The China-US trade war is set to escalate later this week when the US' public comment period ends.
- The new measures would impose tariffs on approximately half of all Chinese exports to the US.
- New trade war developments would damage risk appetite further, already weighed on by contagion in emerging markets.
See the DailyFX Trade War Infographic[1] for a visual history of the events that led to the US-China trade war.
The China-US trade war is set to deepen later this week when the public comment period for the US tariff proposal ends on Thursday, September 6. The US has already imposed tariffs on $52 billion worth of Chinese imports, and the new measures would place tariffs on essentially half of all Chinese imports into the US (over $505 billion imported in 2017).
While market participants have mostly brushed aside trade war escalations thus far, new tensions will come against a deteriorating risk appetite backdrop given concerns proliferating about emerging markets[2]. The BRATS currencies - Brazil, Russia, Argentina, Turkey, and South Africa - have come under significant pressure in recent weeks, and the Chinese Yuan isn't far behind.
Even if there is a case to be made about domestic Chinese concerns[3] that might give investors reason for pause (just as there are domestic Argentinian, Turkish, and South African reasons provoking the weakness in those respective currencies), the US-China trade war is clearly to most significant driver of USD/CNH[4] in the short-term.
Moving forward, the tit-for-tat strategy[5] of exchanging tariffs with the United States is going to continue for China, but not for long. After all, while the US imported $505.5 billion of
