World Events Summary: 30th June – 6th July 2018

Trade War: China and the U.S. finally implemented the first wave of tariffs against each other. The big question is whether they will manage the tensions in the relationship sufficiently to contain the economic fallout. The Trump administration has already indicated that it will prevent China Mobile gaining access to the U.S. market. The Chinese authorities are, reportedly, planning to cut income tax to boost consumption.

Currency Tensions: the RMB fell by a record 3.3% in June, providing Trump with a clear demonstration of the tools available to the communist party. A full-blown currency war does not appear to be on the cards but further trade tensions will surely entice some other countries to devalue as a way of reducing economic pressure. Will the Trump team start to talk down the dollar once again? It is certainly possible.

EU and Trade: China is, reportedly, trying to create some kind of alliance with the EU, against the U.S. Such attempts have been rebuffed so far. China also called on the EU to keep inward FDI channels open to its firms after recent tightening in U.S. standards – designed to prevent asymmetric technology transfer.

Car Wars: Germany’s car manufacturers and Merkel signaled their willingness to cut tariffs to prevent a trade war with Trump. While the market took this as a positive sign the process offered is likely to be rejected by Trump. The EU (under French influence) insists that negotiations can only take place after any threats are removed and talks are envisaged as a multilateral process with South Korea, Japan involved.