Bbc
There were heroic efforts overnight of Donald Trump and those around him to suggest that the last seven days were anything other than absolute chaos.
By this reading, Trump’s 4D chess game left China in check. Admittedly, the Chinese economy faces a massive blow of punitive prices in its largest market. But even taking into account the president’s return, the United States has nevertheless erected a massive protectionist tariff wall, not seen since the 1930s.
The world ends up with a universal 10%rate, which this country (for example the United Kingdom or Australia) actually sells less in the United States than the United States. There is now no difference between the EU, which clearly has a massive trade deficit in the goods and was preparing to retaliate and in the United Kingdom.
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Could President Trump continue the tariffs on drugs afterwards?
There is also an anxious expectation to discover what comes next. One of the questions is whether President Trump is advancing with medication prices, the second largest export of goods in the United Kingdom.
In addition, there is a potential logistics chaos on the cards from a rating tax of several million dollars that are not very zero for each cargo ship in the Oscarchant in the United States which was “manufactured in China”. This represents more than half of the world fleet of merchants – and it is due next Friday.
Even with the break indicated by Trump at 90 days on the implementation of higher prices, there is too much uncertainty for companies to go through the fun of redirecting world trade.
China’s fallout
The central problem today, however, is that the two major economic superpowers in the world are now confronted with each other as stags in rut.
The prices at these exceptional prices are massively in cases between two nations which together represent around 3% of trade around the world. The main highway in the world economy is actually closed.
The tangible consequences visible to all this will become very real very quickly: Chinese factories will close, workers walk from the factory to the plant in search of work.
Beijing will have to organize a set of stimulus to take into account the loss of whole percentage points of GDP, the kind of thing that occurs when a natural disaster flattens a large city. Painful, but manageable at a cost, but not forever.
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China should launch a recovery set to compensate for economic damage
Meanwhile, the United States will see consumer prices. President Trump could try to order these American companies not to increase prices, but the effect will occur early from the Amazon application to Istore.
In theory, this contrasts strongly with what is happening in other countries of the world. On the other side of the border in Canada, or in Europe, not only will there be no price increase from China, there could be price reductions.
From trade wars to currency wars
The commercial wars on this scale do not remain confined to the flow of goods. They tend to become monetary wars.
What we saw last night is the dissemination of commercial disorders to credit markets, in particular the US bond market, having already reached equity prices.
Indeed, there was an invaluable revelation for the theory of the games of this conflict. The Trump administration revealed a key pressure point with its concern about the “Yippy” – as Trump called it – Bond Market.
While trade in the American government debt continued overnight in Asia, the effective interest rate on these obligations increased to 5%.
This type of loan should not move as erratic.
The last time it happened was in the “money’s dashboard”, the key moment in financial fragility at the very beginning of the pandemic. The world focused on life or death in March 2020, but this greater crisis was only attenuated by emergency measures.
Indeed, the president’s return was a form of change in emergency policy.
Was the Chinese government behind this wave of bond sales of the United States government in Asia? Probably not. However, what happened on Wednesday underlined a vulnerability to Trump.
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Interest rates on US government bonds reached 5% in the day after day in Asia
China is the second largest holder of the American government debt in the world and if it chooses it, throwing all this debt would be catastrophic for America. But that would be a form of mutually ensured economic destruction – losses for China would be enormous.
More importantly, what the bond markets said to Trump is that they are deeply skeptical about his tariff policy.
The United States has the Federal Reserve, which has a certain power to calm the bond markets. But for the moment, it does not seem that its president Jerome Powell will go to the rescue.
The skepticism of the bond market echoes the feeling of the ascending secretary of the Treasury Scott Bessent. He is now putting pressure for Trump to conclude trade agreements with their allies because the United States needs it to face China.
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The doubts of the bond market echo the skepticism of the Secretary of the Treasury Scott Bessent
Since the United States previously called these same cheaters, looters and looting of the nearby allies, there is no way whatsoever the strategy from the start.
This matters. The United States needs the EU, the United Kingdom, from the rest of the G7 on the side of China. China probably needs these countries just to stay neutral and continue to absorb its exports.
The rest of the world saw the Trump team fight to explain the tariff penguin islands or poor African economies and the president himself by recirculating the suggestion that he expressly crushed the stock markets. And they saw the fact that the rate rates were modified after their entry into force and also the absurd nature of the equation used to calculate them.
It is in this context that the management of the situation by Trump made the lever to the rest of the world, because neither a friend nor an enemy will negotiate with America while things are such that they are.
There is a calm, greeted by all, but it could be quite brief.
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