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Commodities and equities have a weaker tone after U.S. President Donald Trump escalated a trade war with China.
The U.S. threatened to slap another 10% tariff on $200 billion of Chinese imports in response to China’s retaliation over previous U.S. tariffs. This time the U.S. list includes numerous consumer goods.
“China immediately objected and vowed to retaliate, but the tit-for-tat strategy is limited by the more modest U.S. import penetration,” said analysts at BBH.
Still, there are various asymmetrical ways China can respond, and it may be best for it to just do it without making major announcements, such as squeezing U.S. businesses operating in China, which incidentally sell more than $300 billion of goods there in addition to exports.
When considering the commercial relationship between the U.S. and China, these domestically produced and sold goods are an important part even if the direct benefit to U.S. employees is not straightforward.
The trade confrontation is “sucking the oxygen away” from other issues and is the main focus of markets. The broad response was to take equities and commodities lower and the dollar and bonds higher, BBH added.