SINGAPORE (July 30): When is a trade war not a trade war? When it’s a trade battle. Or a trade spat. Some have even called it a trade tiff, which makes it sound no more serious than a domestic disagreement, like a couple arguing over whose turn it is to do the dishes.
Whatever label you choose, it is clear that tensions have entered a new and potentially dangerous phase. Up to July 6, one could still argue that all the talk about tariffs was merely a bargaining chip to get the other side to the negotiating table. But now the threats have become reality, with the US and China levying tariffs on US$34 billion ($46.5 billion) worth of each other’s goods, and threats to tax practically all imports from the two countries.
Interestingly, stock markets around the world have responded very differently. China’s equity markets have been hurt badly, with the MSCI China 50 A share index down about 20% in US dollar terms since March 1 (see chart). Europe’s shares are at roughly where they were on March 1, although we can see the negative impact of tariff talks in June as US President Donald Trump opened up another front with a dispute on European automotive tariffs. US shares, on the other hand, are in fact higher than they were at the beginning of March, owing to a strong domestic economy and lower exposure to international trade flows, although they, too, showed a slight dip, owing to nervousness about trade in the first half of June.
