92 Per Cent Plunge in Chinese Investments As Trade Wars Heat Up – There’s More To Come

22nd June 2018 / Global
92 Per Cent Plunge in Chinese Investments As Trade Wars Heat Up - There's More To Come
TruePublica: The threat of a full-scale international trade war between the US and China has been dominating the news in recent months, especially so in the last few days. The two countries have now exchanged import tariffs on each other’s goods and are threatening further protective steps in a tit-for-tat game of economic chicken.

Trump has stated a further $200 billion on top of the $50 billion of tariffs already imposed will be ordered if China does not do as he says. Trump has then exerted full force by adding another $200 billion, which could be added if China responds negatively.

Stocks markets are bracing themselves and many share prices of those corporations expected to be affected have already taken a dive.

The growing trade row has meant that Chinese investments in America totalled just $1.8 billion from January through to May this year, representing a 92 per cent drop against the same period a year ago. That is the lowest level of investment by China for years.

China does have a few tactics available to it if it wishes to carry on fighting. Apart from lowering investments as it has just shown, China could obviously continue to hit the USA with more trade tariffs causing an inflationary spike. If a trade war escalates much further, major American corporations would be damaged and so would Trump’s standing in the business environment.

China can keep taking the pain too – it does not have to worry about mid-term elections, or who is going to be in power a few years down the road.

China could stop buying oil and gas from America and instead buy from many other willing suppliers such as Iran and Russia. That would put significant pressure on the price and saleability of US fracked products – already under extreme pressure from low pricing.

China could also devalue its currency, which would make it more competitive internationally, especially as most transactions are still undertaken in US dollars.

China is also holding about $1.18 trillion of US Treasuries, making it the largest of America’s foreign creditors and the second overall owner of US government bonds after the Federal Reserve. It would be a dangerous thing to do but dumping any significant portion of that holding would drive bond yields higher and make it more costly to finance the federal government. That is something the US government would not want given the scale of its own debt. It would also have a major impact on US finances and global investors more widely.

Anything could happen as it appears that Trump is willing to risk anything simply to win. It is unlikely that this particular trade war will simply wither away. There’s more to come as China will not want to be seen as hesitant, powerless or indeed show any weakness on the international stage – it’s not their way.

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