Whereas trade tensions between the United States and China seemed to be diminishing at the end of June after a ceasefire at the G20 summit in Osaka, the past five days show a completely different picture. With the announced new import tariffs from the American president Donald Trump, the trade conflict between the two countries is back. What happened in recent days and how should it continue?
On Thursday, Trump gave the financial markets a hefty portion of headache when he announced new import taxes on Chinese products on Twitter.
Trump wants to introduce import tariffs of 10 percent on 300 September on 300 billion dollars (more than 270 billion euros) of Chinese goods. Earlier a rate of 25 percent was introduced on 250 billion dollars worth of Chinese goods. With the new rates, the entire export of Chinese products to the US falls under US import rates.
Asked for a reason behind the new import duties, Trump told US media that Chinese President Xi Jinping was "not going fast enough" in the negotiations.
Since the announced import rates, fairs worldwide have fallen considerably. The AEX closed 3.2 percent lower on Friday and also suffered losses of more than 2 percent on Monday.
See also: Trump again introduces additional import duties on Chinese goods
Yuan new weapon in the conflict
On Monday, China hit back in the trade battle with a new weapon: the Chinese yuan. The Chinese central bank allowed the currency to fall sharply in value. Where you received 6.88 yuan for one dollar on Friday, this was 7.04 yuan on Monday.
In a statement to the business newspaper, the central bank points to trade protectionism and import tariffs on Chinese goods as reasons for the fall in the yuan.
The weaker currency makes it more attractive for American companies to get products from China, because you get more for your dollar spent. The cheaper currency also eases the pain of import tariffs for Chinese companies.
See also: Chinese currency to lowest level since 2008 after new Trump levies
"Escalation in the trade war"
"We are experiencing an escalation of the trade war here," said Raoul Leering, Head of International Trade Research at ING about the increased import rates and the weakening of the yuan.
The ING economist states that the chances of an agreement between China and the US have increased in recent times. "The conflict is going to hurt more economically with both parties, which will increase the willingness to reach an agreement." Leering also thinks that Trump makes a better turn for his voters if he can point to a number of deals that he has concluded, leading to better trading conditions for the US
"Both parties shoot, then I think it's a war" Raoul Leering, economist at ING
However, that deal will not come in the short term, says the ING economist. "The views of both parties are too far apart for that." ING assumes a trade agreement around New Year, "but the downside risk has increased in recent days," warns Leering.
Asked if we should speak of a trade conflict or a trade war, Leering responds dryly: "I think it is a trade war. Both parties are shooting, so then I think it is a war."
240Fierce struggle between the US and China is not just about trade