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01/07/24
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China-West Trade War Will Likely Push USD Higher
An all-out trade war between China and the West will likely boost the U.S. dollar.
Uncertainty about global trade policy is at its highest level since 2018-2019 when clashes between Beijing and former U.S. President Donald Trump’s administration hit a fever pitch. Although it is currently not close to those peaks yet, it will likely gather greater attention as the U.S. presidential election gets closer.
More tariffs on Chinese imports and likely retaliation seem inevitable whoever wins in Nov. China is already saying that Europe joining the tariff train would be seen as a “trade war.”
Trump returning to the White House would significantly increase the stakes.
Shrinking cross-border trade and rising protectionism may dampen growth everywhere but the U.S. – the currency and economic superpower of the world – has levels of protection that others don’t.
Those include the omnipresence of the dollar in international reserves, the global importance of U.S. bond and equity markets, and the relatively closed nature of the economy.
That does not mean the U.S. won’t suffer – inflation might rise and growth would slow. But higher inflation will possibly delay or eliminate Fed interest rate cuts, and growth in the U.S. would be less vulnerable than in Asia and Europe.
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