US - China trade war, boxing flag fists

The Affects of the Trade War

Welcome back! 

If you’re here, it’s most likely because you’re interested in finding out exactly what is going on in the world from market crashes, world recessions, Trump, China, etc. It all ties down to one main thing – The Trade War. 

The trade war started at the beginning of 2018 and has caused the markets to rattle ever since. A brief rundown on the cause of this trade war is as follows. 

President Trump began to notice the huge dollar difference that was being paid to China for importation, compared to what China was paying America for its exports. Trump investigated the situation and concluded that America has paid China (along with the rest of the world) billions and billions of dollars over the years while making what seems to be pennies in comparison from China.  Now, of course, China is exporting a lot more product than America. It’s the number 1 biggest exporter in the world. However, Trump felt that China was taking advantage of its merchandise and charging unnecessary tariffs. 

That’s when it all began. 

The first tariff Trump imposed was in January on solar panels and washing machines of 30-50%. Shortly after he imposed tariffs on steel and aluminium from most countries. Not just China. Later these taxes expanded to the EU, Canada and Mexico. July, however, was when the real trouble began. Trump imposed a tariff of 25% on over 800 categories of Chinese imported goods and China accused America of instigating a trade war. 

How The Tariff’s Affected America: 

There was a shortage of simple things such as avocados. At the same time, Trump came to notice the amount of product imported from all around the world. The president said that America should be producing its own materials because in time of war the country won’t need to ration immediately and will be able to survive alone. Industries such as manufacturing (cars, aeroplanes, etc) found themselves having to either start to manufacture their own metals or find other places to purchase from that didn’t come with huge tax. Such situations are exactly what Trump was referring to. The Americans will begin to open their own factories, lower unemployment rates at the same time, and begin to form their own products within the country. 

A year later, on June 28th 2019 the G20 Summit took place in Japan.  (A yearly event that takes place every time in a different country. It’s an international gathering for heads of governments and states and financial and foreign ministers, where they discuss issues that are no one person’s responsibility. I.E – Global Warming.)

Between this time, tariffs were being thrown from left to right, on every possible import and export, exaggerating percentages, and overall a mess in the markets that brought Wall Street and the banks to warn the public of a world recession. 

During the G20 event, many things were discussed, along with an agreement between China and the US to end the trade war. President Donald Trump and President Xi Jinping shook hands. The world sighed in relief. Press immediately jumped on the news, trying to get it out there as fast as possible before anyone takes back their word and havoc returns to the world.  Once the weekend was over, President Trump returned home with an empty feeling, almost sad that he couldn’t slap on more tariffs on China, so looked for a different country to turn to, and so he found the EU. Four billion dollars of tariffs were then shortly imposed on European exports. 

Recession:

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

Due to all the tariffs imposed since 2018, Americans (and other citizens around the world) can no longer afford to purchase Chinese products, and everyone is at a loss. On the other side of the world don’t think for a moment things are different. China is suffering just as hard. The country isn’t able to sell the same amount of merchandise, affecting the countries currency and economy as a whole. Considering China is the world’s biggest exporters when China suffers, the world suffers too, bringing the world close to a 5th recession. 

Early June Wall Street’s biggest banks warned us that as long as this trade war continues, the world will become closer and closer to a recession. This could take place anytime within the next 9 months if trump follows up with the 25% tariffs on an additional $300 billion of Chinese exports. So as we’ve seen, tariffs are continuing, and the trade war has not yet become a thing of the past. Therefore, we stand close to a world recession.  Recessions don’t always affect everyone though. The rich get hurt badly and suffer tremendous losses, and the poor stay poor. The middle class should tread carefully. Best to close any investments that are still open to assure the safety of their funds. 

But don’t be fooled, a recession doesn’t mean to steer clear of all trading, rather it means knowing your history, learn your graphs and trading with extreme precaution.

Trading on stocks can be risky, so be sure to know full well the company and its intentions. Investing in cryptocurrencies may perhaps be a good move too. Last time the markets suffered a crash, virtual coins found their place and shortly after, as the world began to discuss their importance and future. We cannot be sure if this will happen again, but considering the common phrase: “What has happened before will happen again. What has been done before, will be done again. There is nothing new in the whole world” were wondering if this could all just be one large cycle.

(Bitcoin was created in 2008 when the world suffered from the SubPrime. Shortly after people began to purchase some of this virtual coin and the price rose to around $1,000 a piece. As we later saw in 2017, the coin drastically rose, hitting an all-time high of $21,000, and crashed hard after Christmas, starting off the new year with huge losses.) 

American Interest Rates: 

An interest rate is a percentage charged on the total amount you borrow or save.” 

So how do the interest rates that have been the talk of the town connect to all this? 

A recession otherwise means that prices fall everywhere. Wages decrease, unemployment increase, house prices drop and so does the stock market. Businesses suffer, and overall a domino effect happens. One of the main causes of a recession is high-interest rates. Therefore, the federal reserve has been contemplating lowering the rates for a long time now. Since 2008 the rates have not been lowered. The feds lowered the rates in the third quarter and have been discussing lowering them again at the next meeting.  On the 31st of July the interest rates were lowered by 25 basis points, bringing them down to 2.25%. Along with the rates came the markets crashing down. 

The world was looking into entering a global easing. The ECB Conference took place a week before the US’s interest rates. Mario Draghi spoke out and said that Europe is currently reaching an all-time high, and lowering the rates would put an end to all that. However, despite Europe not joining, other countries have lowered their rates. New Zealand lowered their rates by 50 basis points. 

China’s Currency Drop:

The Chinese yuan has been on a continuous drop for a while now, bringing down China’s economy.  At first, it didn’t matter to China, a cheaper currency meant more orders from consumers worldwide. However, a low currency carries some other unseen risks such as imports to China. With a low currency, importation is much more expensive, driving up inflation and creating strains in its slowing economy. The yuan seems to have a strong resistance point at 7 yuan to the dollar and currently stands. Although the currency is not known for standing at these prices, it’s been said that should the currency drop below the 7 yuan to the dollar mark, investors should expect it to fall much much deeper. 

A truce between the two countries has been going back and forth for a long time now, but China is occupied with more than just the trade war. Protests in Hong Kong have not been making it easy for China to stay focused. Hong Kong citizens continue to swarm the streets and airports, delaying and cancelling flights due to the new Extradition Bill. 

The near future might not be so bright, a market crash is expected as we draw closer to 2020. Supposedly a crash happens every 8-10 years as the market goes through a correction. Traders are aware of current market trends, watching things rise like never before. The European markets, as well as all that happened with the Silver and Gold commodity, and again now with the bonds market. It’s a common trend in the markets for things to rise drastically before a market crash. It’s almost as if the market is pushing to reach its maximum capacity before tumbling down. So trade safely, and make sure to not keep all your eggs in one basket. 

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