The Daily Update - Trade War Looms

For the first time in many years, tomorrow’s Non-Farm Payrolls, thought to come in at around +195k, is taking second stage as the next wave of Trump tariffs on Chinese imports is due to be imposed. Broadly, a tariff of 25% on $34bn of China’s exports to the US tomorrow with a further $16bn to come at a non-specified later date. China have already responded saying it would retaliate ‘equal scale, equal intensity’ targeting food products such as soybeans and rice but also autos in the first round.

We have all become a little sanguine regarding President Trump and his very loud bark, as so very often the bite is more of a nibble than a full-fledged pitbull like attack.

China have already pointed out that around 59% of the initial exports targeted are actually produced by foreign firms in China including American companies. So we await the announcement which is due tomorrow at any time, however, if the tariffs become effective at midnight US time that would be lunch time in Beijing so the response is expected to be almost immediate. This could then set off a chain reaction that could send the global economy into an all-out trade war of alarming proportions should the situation escalate with attack followed by retaliation.

Every cloud has a silver lining, Dufry AG the world’s largest duty-free retailer could be a hedge if things escalate their CEO said yesterday ‘We’re not subject to taxes, were not subject to duties—if there are taxes and duties at the border, for us it is better’.

In the office we think the tariffs will be put in place, however, the odds of a further delay are around the same price as England to win the World Cup, 4:1.

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