With the Trump administration cranking its provocative trade strategy up a gear in just a matter of days, and Beijing toughening rhetoric on disputes with Washington, investors have a widening array of new geopolitical fronts they must keep tabs on. Many have the potential to escalate rapidly to create new fissures in already fractured risk appetite. It’s worth looking at the key ones in some detail.
- India is downplaying the White House’s decision to remove the country’s duty-free import privileges from 5th June. The move isn’t out of the blue. But it does show how any one of Washington’s low-level spats with key trading partners can suddenly bubble. U.S. President Trump warned in March that India could lose Generalized System of Preference benefits. As such, although the country is the scheme’s biggest beneficiary, reduced surprise cushions the market impact for now. New Delhi’s measured response—remaining "confident that the two nations will continue to work together intensively for further growing these ties in a mutually beneficial manner”—also enables a calm reaction. Strong consensus that the Reserve Bank of India will cut rates by 25 basis points this week was additional tailwind for India’s BSE Sensex index, which closed 0.8% higher on Monday. Once the lift from easing passes though, recent weaker-than-forecast growth will combine with worries about uncertainties U.S. policies are stoking for the world economy will raise questions about how long Indian shares can continue to outperform word shares this year
- Meanwhile, the White House hasn’t denied a New York Times report that the U.S. considered imposing tariffs on Australia’s aluminium imports, though appeared to downplay it. Still, the news can’t help but keep investors on edge as an increasingly trade trigger happy Washington appears to broaden any rough criteria it may possess for what constitutes appropriate use of punitive tariffs seemingly each week. London aluminium
- Mexico isn’t finding it as easy to swerve the hit from Trump’s shock threat to impose escalating tariffs from 10th June unless it stems a so-called ‘surge’ of illegal migrants crossing its border into the U.S. Bank stocks on Mexico City’s S&P BMV gauge fell the hardest, even as a delegation led by Mexico’s Foreign Minister heads to Washington for talks. With apprehensions of illegal migrants trending at multi-decade lows, and President Andres Manuel Lopez Obrador already having ramped detentions and deportations, it’s difficult to see what more Mexico can offer. This increases the chances of tariffs being imposed, and that Mexico City might retaliate, as it did when the U.S. levied higher steel duties last year when NAFTA animosity was acute
Those new fronts on the U.S.’s trade conflict lengthen the horizon to a possible thaw with its most corrosive aspect to date, the U.S.-China dispute. China’s actions that can be construed as escalations also came thick and fast over the last few days
- Beijing has threatened a ‘hit list’ of unreliable U.S. corporate entities, which may be singled out for specific punishment
- It’s unclear whether these will include the logistics giant FedEx, into which China has launched a separate investigation after it failed to deliver certain packages to Huawei, an omission which the U.S. group apologised for last week
- Overall, Beijing and Washington have intensified a mutual blame game in recent days, with each side attempting to attribute complete responsibility for the collapse of previous consensus on the other
- China also looks to be firming up plans to limit rare earth exports, though few details have been provided so far
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