THE FEARS OF TRADE WAR OR JUST MALAISE

about 10 months ago
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By Ruma Dubey

Well, Trump was braying for war and he now has it! The trade war between China and USA is fast escalating; eye for an eye and the stock markets are already reeling. The fear on the trading streets of both stocks as well as commodities is palpable.

Yesterday Trump proposed a list of 1300 products imported from China which could be subject to an additional tariff of 25%, amounting to $50 billion. China reacted swiftly and today morning, it announced new tariffs on 106 US goods worth $50 billion. You did it so I will also do it. That’s how this wind is blowing.

Trump has been accusing China of robbing the US and China has said that it wants to avoid a trade war but will retaliate if dragged into one and ominously added that it will fight till the end!

The Indian markets might have reacted purely taking a cue from the global markets but today’s fall was pretty steep and precipitated. That brings to focus the question – is this trade war getting serious?

The Economist has called it “non-negligible.” This means it is a factor but not really something which will have any major impact. Most economists around the globe, in various media have stated that they do not foresee any major economic fallout of the tariffs announced so far.

Another major factor weighing down the markets, especially the global markets is once again Trump’s Tweets on Amazon; that is seriously scary! He Tweeted yesterday, “Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed,' Trump tweeted. 'Also, our fully tax paying retailers are closing stores all over the country...not a level playing field!” And this Tweet of yesterday comes after a series of more scathing attacks on Amazon last week. The worry is that this is probably an indication of a storm which could come brewing on this American tech giant and that is something which will not go down well with the American traders. Facebook as such is facing a lot of flak over the scandal which broke out few days ago. Other tech stocks like Netflix and Google are also down.

Thus it is all this US and China which is weighing down the markets; tomorrow’s Credit Policy does seem to have much of a bearing as it is almost a certainty that it would be a status quo.

Yes, the travails of the Indian banking sector and serious corporate governance issues should have a bearing as we today seem to have reached a breaking point.

The silver lining – the weather company, Skymet stated today that India’s monsoon is expected to be normal. Maybe if we look beyond banking and IT, the other companies could surprise us with some bumper numbers for Q4 and coming months.

The truth is that for now we have to live with this uncertainty and see how far this trade war goes. Till we do not know the answer to this, this sense of malaise will remain.

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