Sunday 22 January 2017

President Trump Warns Trading War With China


The Republican’s protectionist rhetoric on trade, labelled “locking oneself in a dark room” by Chinese premier Xi Jinping in Davos this week, has caused alarm among experts even as shares and the dollar bounced in the wake of his shock election win.

Trump pledged during the campaign to label China a currency manipulator for weakening the yuan and putting US workers on the dole — triggering formal talks with Beijing — as part of a wider policy of tariffs on US imports.

This could hit the UK, which exports more to the US than it imports. Trump has already said he will pull out of the Trans-Pacific Partnership, a trade deal between 12 countries years in the making.

Grant Lewis, head of research at Daiwa Capital Markets Europe, warned: “The risks posed to the US and global economies from a protectionist US President are real and not yet fully appreciated in my view.

“The biggest risk would be a sharp global slowdown on the back of a trade war. Remember when the G20 met in London in 2009 and top of the agenda was not to start a protectionist war like the Thirties? Well, that pact lasted until now, much to the global economy’s benefit. My biggest fear is that it doesn’t survive 2017.”

Despite Trump’s threat, China has been intervening to strengthen rather than weaken its currency more recently in the wake of fears over its economy, which figures today showed grew at its slowest pace since 1990 last year.

But Berenberg economist Holger Schmieding added Trump’s tough talk would escalate tensions with Beijing.

He said: “Some additional noise about trade disputes with China or pressure on Mexico to renegotiate parts of the North American Free Trade Agreement would… not affect the world much.

“If Trump goes much beyond that, however, all economies would suffer. And his unusually harsh and fairly consistent rhetoric against China indicates a serious risk of confrontation with China that could go well beyond the usual petty trade disputes.”

The FTSE 100 eased 8.23 points to 7200.21 today as traders sat on their hands ahead of the inauguration, but caution prevails. One market- maker said: “About 70% of our orders are now sells.”



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