Home > US / China Trade Deal Still Matters for Financial Markets

US / China Trade Deal Still Matters for Financial Markets

Financial markets tend to shift focus from one event to another without hesitation. When there is nothing on the international economic or geopolitical agenda, the market reacts strongly to even second-tier economic data (e.g., Durable Goods, consumer confidence, etc.). 

This is why financial markets are beautiful in the sense that no day is like the other – as a trader, you never know how markets will react to something new.

The U.S. – China trade deal is such an example. It held the headlines for a couple of years or even more. Any comment from Chinese or U.S. officials created huge market swings. Not anymore, as the coronavirus replaced it. However, it does not mean that nothing goes on with the most important trade deal in recent years.

Trump, Protectionism, and Tariffs

Since Trump’s election, financial markets had to cope with gigantic changes. Shifts in all areas became the norm.

One of the first moves in Trump’s presidency was to lower the corporate tax. Next, the White House changed the NAFTA deal. Following that, it began imposing tariffs or threatening to impose tariffs on nations seen as taking advantage of the United States.

Suddenly, cars from Europe or steel from neighboring countries were targeted with tariffs aimed at protecting American goods and workers.

The coronavirus stole the show. The trade deal was supposed to be the cherry on the cake for Trump’s administration heading into the second term elections.

Ironically, the trade deal fell in second place. As the U.S. officials mentioned, it doesn’t even matter at this point. However, numbers tell us that the two countries do trade, quite significantly, albeit below the projected volume promised so far (about 50% less).

At this point, though, U.S. and Chinese relations changed swiftly. The White House blames the Chinese for not controlling the virus good enough to stop the worldwide spread. The Chinese military actions in the China South Sea are viewed as a threat to world trade (it is a crucial corridor connecting East and West). Hong-Kong is just another piece of the puzzle.

As traders or investors, all these matters. If they create market swings, they are important for traders, regardless of the market of interest.

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