We have reported in a number of YouTube videos and articles (as shown on our website illuminatisilver.com) that trade tensions between the US and China escalated last month, after the Trump administration accused China of having “reneged” on promises to make structural changes to its economic practices.
The result was, that on 10th May, Tariffs were raised to 25% on $200 billion of Chinese goods, and steps taken, to levy duties on the remaining $300 billion Chinese imports.
Of course, as one would expect, China retaliated with tariff hikes on U.S. goods.
Now the plan, was for President Trump to meet with President Xi of China at the G20 Leaders’ summit at Osaka on June 28th & 29th by which time it was hoped that an agreement would have been reached.
This now appears increasingly unlikely, especially as Trade sanctions are spreading from goods to services, with China issuing a warning to citizens about risks of travelling in the United States and U.S. lawmakers pushing to tighten visas for Chinese students.
We need to even mention the conflict with Huawei the electronics company which has essentially been blacklisted by the US, and numerous other examples of potential conflict escalation.
Now despite this, it has just been reported, that China’s total exports rose 0.4% between January-May compared with the previous year while imports declined by 3.7%. from a year earlier.
At the same time China’s trade surplus with the United States, widened to a four-month high of nearly $27 billion in May, from just over $21 billion in April.
China is looking at ways to loosen economic policy further in the months ahead to shore up economic growth and to encourage the economy to become more consumption based.
Ironically, we have had President Trump quite rightly, criticise China for devaluing its currency in the past, but now, we have the situation, whereby the Yuan has depreciated nearly 3% against the dollar since May – so this situation has only got worse.
This has been further aided by China’s Central Bank only intervening very lightly to prop up the Yuan, which is evidenced by its recent rise in foreign exchange reserves
On the other side of the coin, exports to the U.S. fell at a more moderate pace of 4.2% after dropping 13.2% in April, while China’s imports of U.S. goods declined 26.8% from a year earlier.
Many analysts now fear that China’s Central Bank could cut their benchmark interest rate in the event of a full-blown trade war, especially if the U.S. Federal Reserve eases policy first which many believe to be quite likely.
The International Monetary Fund (IMF) last week cut its 2019 economic growth forecast for China to 6.2%, which would mark the country’s weakest expansion in 29 years but still a phenomenal growth figure compared with those of us in the west.
Many have been puzzled by this rise in exports from China, but initial research indicates that exporters increased their production and buyers increased their demand for Chinese goods before the tariffs were increased. It shall be most interesting to see what the figures will be from hereon in.
We accept that the world is heading towards a recession, though quite frankly, we estimate it will take longer than many predict, as Central Banks will indeed adopt measures, and Governments introduce spending initiatives, to ameliorate some of its worst effects.
There is clearly a showdown brewing between these two superpowers and whilst one would like to think that common sense will prevail one cannot be too certain.
But just look at how markets have responded to the news that the Mexico tariffs would not now be introduced. The Dow jones is up some 185 points at 26,169 breaking that psychologically important barrier or 26,000. The dollar is up 0.20 at 96.75 and gold has fallen some 412 to $1328 and silver has fallen back 29 cents to $14.73 – just imagine what would happen if the China US trade conflict was resolved?
What do you think?