China selling its Treasuries: a warning to Trump?

There has long been speculation over whether China might use its huge portfolio of US Treasuries as a weapon in the (trade) war against the US. The latest data from the US Treasury Department is likely to add fuel to these speculations: Having already sold US Treasuries to the tune of USD 20 billion in March, China went on to sell further T bonds worth USD 10 billion in April. The volume of US Treasuries sold by China in the last twelve months thus amounts to an impressive USD 86 billion. As the chart below shows, this is not the first time China’s portfolio of Treasury bonds has fallen, and the current episode is also unlikely to break any new records. The Chinese had already disposed of US Treasuries in 2016, with the sales volume adding up to an even more impressive 150 billion US dollars. However, there is one…

Currency manipulation – the next level in the Cold (Trade) War?

For many market players, competitive devaluations are an integral part of a trade conflict. The dispute between the USA and China, which has been openly waged for more than a year now, is becoming increasingly heated. But so far it has remained confined to a fatal spiral of punitive tariffs and countermeasures at the real economic level. Nevertheless, there is growing unease on the US side about exchange rate developments. US Secretary of Commerce Ross recently threatened to impose punitive tariffs on countries that he suspects of engaging in currency manipulation in order to give their export trade an unfair competitive edge over US rivals. This might not sound particularly exciting at first, but in actual fact it is an expression of a US domestic power struggle. Until now there was never any doubt that the assessment of currency manipulation was a matter for the US Department of the Treasury,…

US consumers in particular are paying for Trump’s punitive tariffs

US President Donald Trump is boasting that the Chinese have to pay his punitive tariffs and are pumping billions of dollars into the state coffers. This representation is not correct. US importers can only pass on the tariffs, which they have to pay themselves, to the Chinese if they are granted corresponding discounts by the Chinese exporters. This might have been the US government’s objective; it has at least established the framework for this with the selection of product groups concerned. To date, the tariffs were imposed especially on products with relatively high elasticity of demand – processed food and animal products, for example, that are relatively easy to substitute, or numerous intermediate products. Consumer goods where there are few alternatives available to US consumers, such as clothing or toys, were largely spared. However, we can see from several current studies carried out in the US that it was not…

Politics continues to dictate events in the foreign exchange markets

Overall, the political situation in Europe remains relatively unclear, which is placing Europe at a disadvantage compared to the USA. What’s more, Trump’s policy, which is very inward looking and tailored to the advantage of the USA, is increasingly making itself felt in the foreign exchange markets. This has led to a sustained appreciation of the US dollar. In the short term, the escalating trade dispute is also likely to put far less of a strain on the US economy than on the rest of the world, which should also have a positive impact on the US currency. Overall, US president Trump also continues to hold the “trump” cards in his hand, which ultimately also makes his political style possible. Global foreign exchange markets have been dominated primarily by geopolitical and trade policy developments during the past few weeks. Uncertainty has been caused not only by the well-known conflicts such…

Huawei ban can have consequences worldwide

On 16 May, the US Department of Commerce imposed sanctions on the Chinese technology giant Huawei. US companies can only do business with Huawei subject to strict conditions. The reason given for this measure was that the company was involved in „activities that conflict with the national security interests of the USA“. Huawei is not just any Chinese technology provider, but one of the leading suppliers to the telecommunications industry, one of the world’s largest smartphone manufacturers and a major manufacturer of notebooks and smart watches. The ban is therefore aimed directly at the „heart of the Chinese technology sector“ and thus represents a further escalation in the trade conflict between the USA and China. Only four days after the sanctions came into force, the US authorities granted a 90-day postponement, having evidently realized that the measures would affect not only Huawei but also multiple U.S. telecommunications companies and customers….

Escalation of the customs tit for tat eats into growth even further

The trade dispute between the USA and China threatens to escalate further. Owing to the strong international interconnections and closely interwoven supply chains there is hardly a country that is not in some way or other affected by this conflict. Only a few days ago, the Vice President of the US Chamber of Commerce was quite optimistic about the course of the trade talks between the USA and China. Now, however, the impression is that a new Ice Age is upon us and everything has gone back to square one. In the final analysis, the news in recent weeks was continually shaped by a constant “up and down”, albeit in a far more moderate tone of voice. Given the new, tough tone, we should cast a glance at what consequences the further escalation of the customs tit for tat has for the two countries directly affected and for Euroland, too….

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