Rational Perspective

Most analysts had discounted the prospect of a trade war between Donald Trump’s America and his Chinese counterpart Xi Jinping. Even when high level talks broke down in May, Trump’s threats were interpreted a massive bluff in a high stakes poker game. He believed China would back down, make the required reforms and the world could get back to business. Those hopes have now been dashed. The world awakes this morning to news that from next week roughly half the $500bn in goods which America imports annually from China will cost 10% more. And unless there’s breakthrough in the next three months, that tariff will jump to 25%. The end of the Trade War’s phoney stage is bad news for emerging markets like South Africa. For ten years developing countries have benefitted from tailwinds of Quantitative Easing and expansion of China’s economy. Those breezes have reversed with liquidity being sucked back out the system and the trade war sure to hurt Chinese economic growth. What the heck is Donald Trump thinking? That