China the Early Loser in Trade War


The Chinese yuan fell again on Friday. The data shows China’s record trade surplus triggered the trade war between the U.S. and China. The relative stability of the U.S., however, is encouraging investors to buy into the dollar’s safety.

Mixed Signals over the Yuan, Trade War and Taxes

The yuan fell to a six-month low. This suggests that investors were very concerned about the latest announcements about this trade war. The European stock markets, however, rose. This indicates that investors expect European companies to benefit from the trade war. If fewer American and Chinese companies ship to each other, European companies could trade with both. Though U.S. President Donald Trump imposed increased tariffs on Europe as well, U.S. relations with Europe are still better than those with China.

The dollar is recovering. U.S. inflation data reported on Thursday also shows strong in-country economic conditions. Expectations about the increase of the interest rate are also rising.

U.S. Treasury Secretary Steve Mnuchin announced on Thursday that the U.S. and China could reopen talks about the trade tariffs. This statement relieved many people’s worries regarding the trade dispute.

The data, however, shows that the U.S.-China trade surplus dispute could escalate even further. Trump pledged to impose taxes on $200 billion worth of Chinese imports this week. Beijing stated that it will retaliate as needed.

With neither side backing down, it’s still too early to tell how the dust will settle for profitability.

The Market is Concerned

This trade surplus was the reason for a lot of concerns in the market, said Ester Reichelt, a Commerzbank analyst. He thinks that these moves are sentiment-driven.

The single currency fell to $1.1613, which is down by 0.4 percent. The dollar reached its highest level in two weeks at 95.241.

The Chinese yuan began declining in April with concerns that the U.S. would impose taxes on Chinese imports. It reversed gains it made in trading in Asia and fell 0.5 percent in foreign markets. It fell to as low as 6.7252, which is almost the lowest in six months.

The yuan is currently 112.775. The dollar is up by about 2 percent this week versus the yuan. This is the biggest gain in a week since September.

Many investors expect Trump’s strategies to pay off for the U.S. economy. Others aren’t so sure and are reserving judgment until further data is available.