June 8, 2019

Trade Under Attack

Trade Under Attack

China Trade Balance – Monday June 10 at 2:00 AM

(updated June 10 at 10:30 AM GMT)

Trump’s zero-sum trade war policy is aimed primarily at the US-China trade imbalance, and May’s release is the first that will reflect the effects of these on China’s trade balance.

With exports down 3.8% in May, Reuters said that China “is expected to report a sharper drop in exports for May”, due to US tariffs, and imports are suffering from “weakening domestic demand”.

Instead, data was excellent – the trade balance up to $52.65bn, despite an 8.5% decrease in imports – hinting at a drop in personal consumption.

To battle tumbling numbers, Chinese manufacturers are moving operations to Vietnam, Taiwan and Mexico. And – as last week’s rare-earth threat showed – China has the tools to rumble global markets excessively, if so it wants.

In fact, rare earth prices have soared 14% since May 20, the day President Xi visited a rare earth plant to hint at his next step in the US-China trade war.

NASDAQ

The Dragon Roars

In response to US tariffs, China has moved the bulk of its Soy bean imports to Brazil. Vice-Minister of Agriculture and Rural Affairs, Han Jun, warned American farmers that they risk losing the entire Chinese market. The government has put out a travel warning to the US; and it has begun investigating US firms operating on its soil.

Clearly, the game is on, even if retaliations are – for now – muted. Meanwhile, as imports, exports and trade balance fluctuate from one reading to the next, market volatility is presenting a haven for short-term traders.

USD/CNY (Courtesy: XE)

China Trade Balance (Trading Economics)

Yesterday’s results prove once again that the ability of a single man – albeit a powerful one – to move markets is limitted to just how much markets are willing to cooperate. And clearly, in the CHinese case, they’re not!

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