RBA Raises An Alarm Owing To Intensifying US-China Trade Tensions

  • Sep 20, 2018 AEST
  • Team Kalkine
RBA Raises An Alarm Owing To Intensifying US-China Trade Tensions

The trade tension between the world’s largest economies is not expected to end in the short-term. These disputes are increasing which might impact the global economies. When the US President Donald Trump made an announcement that it would slap tariffs on Chinese imports of $200 billion, China didn’t seem to back out as they announced retaliatory tariffs on $60 billion of US imports. The Trump administration has, no doubt, taken a major step when it decided to impose tariffs on $200 billion of Chinese imports as this would mean the administration has targeted around half of the Chinese imports to the United States.

Even though the China has targeted lesser amount of tariffs as compared to the US in the latest round, it in no way communicates that it is backing out. However, it can be interpreted that China does not want a trade war and is forced to opt for the retaliatory measures. The Trump administration can even go for further tariffs. They could slap tariffs on another $267 billion of Chinese imports which would cover almost all the sales that has been done by China to the US. In comparison, China has lesser amount of goods to target.

However, China can respond to the Trump administration by adopting other measures. They could hurt the US companies which have operations in China for example, Apple Inc. (NASDAQ: AAPL). Moreover, China can also go for the currency devaluation against the US dollar which would offset the higher costs of the exports. The American companies carrying out operations in China are currently suffering the impacts of the increasing trade worries. A rise in the inspections by the regulators is just one measure, Chinese regulators can make life of the American companies difficult moving forward.

Impact of trade fights on Australian Dollar

According to Reserve Bank of Australia, the global trade fights between the US and China could lead to a rise in its dollar (which may be about 6 per cent) which could negatively impact the economy. The central bank says that it could contract the economy by 3.5%. In the present environment where the trade tensions are being escalated, the Australian economy’s unemployment rate might rise by 0.25% and its inflation could fell by 0.2%. Moreover, the trade worries would also affect the GDP of the country. The country currently has the cash rate of 1.5% and this could be lower moving forward primarily because of the inflation as well as unemployment scenario.

According to Reserve Bank of Australia, the currency appreciation might push the economy and it might be exposed to negative impacts. However, it may opt for cutting the cash rate by 50bps (basis points) which would help the economy moving forward.

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