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Trade war pushes investors towards the dollar

Talk of a trade war between the US and China, which for some time remained dormant due to a detente in rhetoric, is once again in the foreground. Last Friday, US President Donald Trump announced the introduction of new import duties for Chinese goods totaling 50bn USD. It is already known that the plan to impose the tariffs will be implemented in two stages. The initial stage will begin on the 6th of July, and entails tariffs on 34bn USD in goods. The second stage of the 16 billion limit is still being discussed.

In his comments, Donald Trump repeated that the US could no longer tolerate competitive weakness due to "unfair" economic practices. The duties will be imposed on industrial equipment, machinery, including robots, cars, and other targeted goods. In total, the tariff list references 1,102 items.

In response to the move by Trump, China announced the introduction of corresponding retaliatory tariffs on US exports. In this effect, the scope of the impact will be wider, as apart from tariffs on equipment and components, meat (pork) and soy will also be subject to increased duties.

This is yet another chapter out of the book of trade wars, and this chapter promises to be particularly gripping, as we now know the date of these restrictions. For developing economies, the intensification of the trade war between the US and China means a worsening of world trade relations, an outflow of capital in search of a safe haven, and it may possibly have a negative impact on currencies. The US dollar strengthened significantly on the news, with the EURUSD pair on Monday morning trading at 1.1590, and it could easily end up slipping to 1.1550. 

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