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Macroscope | Trade war will probably not end in Armageddon, but investors should be wary
Aidan Yao says that, ultimately, the consequences of a trade war between Washington and Beijing would be so severe that we can expect both countries to back down. In the meantime, however, expect disruptions
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Despite having the best macro backdrop since the financial crisis, the global equity market has come under significant selling pressure of late, as escalating fears of a trade war cast a cloud over solid economic fundamentals.
The fluid situation, created by constantly changing rhetoric and multiple voices from both sides, has made the outlook of Sino-US economic relations very uncertain, leaving the market to reassess the risk of the Armageddon scenario of all-out trade war.
To be frank, we, like the market, have been caught off guard by how fast the situation has deteriorated over the past month.
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Not only did the US conclude the Section 301 investigation – on China’s transfer of US technology – way ahead of schedule, leading to punitive tariffs of US$60 billion on Chinese imports, but Beijing also responded quickly with retaliation of equal scale, targeting 106 American products, including soybeans and cars, for a 25 per cent levy.
The degree of hostility ratcheted up to unprecedented levels within a very short period, leaving the market concerned that confrontations between the world’s two largest economies will deal a lethal blow to the global recovery.
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Knowing what is at stake, one can only assume that trade policies are no longer viewed as pure economic issues, but a tool to reap political gains.
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