Negotiations between the US and China have reached a turning point. But not the one expected
After more than four months of tough negotiations, most traders believed that the US and China were close to a trade deal. This changed two weeks ago when the US president announced that the country would add tariffs worth more than $200 billion on Chinese goods. China responded immediately and announced that it would add tariffs to Chinese goods worth more than $60 billion. The tit-for-tat came after China reneged from some of the details it had agreed during the negotiations. In addition, the US announced that it would ban American companies like Google and Qualcomm from selling their products to Huawei. This move was aimed at punishing the company for the growth it has made in the past few years.
› The impact of the Huawei Ban into Global Market
How can Traders take advantage of this Global Trade War
Therefore, as a trader, the following are the key assets that tend to move fast depending on the US-China trade issues.
Australia is a key trading partner with China. In fact, China imports a third of Australian goods. This means that a slowing Chinese economy tends to affect the Australian economy. This is because when there is a slowdown, China tends to import less of the Australian goods. The chart below shows the performance of the Australian dollar after the trade war returned.
The global indices like S&P 500 and Nasdaq are so important in the market. This is because they are the biggest in the world. Most of the companies in the indices are targeting the expanding Chinese market for growth. As a result, when the trade issues deteriorate, the indices tend to decline. The chart below shows the performance of the S&P 500 in the past few weeks. Other key indices that move in accordance to the trade issues are the Stoxx, DAX, FTSE, Shanghai, and Nikkei.
Copper is an important metal, which is used in the manufacture of many electronic components. As a result, copper is used indirectly by billions of people from around the world. It is known as the barometer of the world economy, and most of it is sold to China. Therefore, when there is a trade war, the price of copper tends to decline. Other metals that tend to decline are platinum, palladium, and iron ore.
› The importance of Copper as Economic Indicator
Soybeans are used in the manufacture of refined oil. They are also used in the feeding of animals like pigs. Most of the soybeans are exported to China from the United States. Therefore, when there is a trade war, China tends to increase the tariffs of soybeans with the goal of punishing the US. In fact, most soybeans are grown in states that Donald Trump won, so can be normal that the price have decreased to the lowest level in more than ten years.
The currencies that tend to move a lot during the US and China trade war are Japanese yen, which rises. The yen rises because it is viewed as a safe haven currency by the market. The Chinese yen too declines because the war affects the Chinese economy. However, the yen is tightly regulated by the Chinese central bank.