Trade Wars Return With a Vengeance, Radical Changes to the Global Economy Are Coming
The zeitgeist is shifting in more ways than one as the COVID-19 crisis continues to drag on, month after month.
In many parts of the world, the situation in regards to the spread of the virus seems to be drastically improving, while others, such as many of the major cities around the world are still in a precarious situation, albeit getting slowing better.
This is leading to communities isolating on not only a state by state, or province by province level, but also on a municipality level, as those least affected begin to demand their freedoms back, while at the same time, hoping that they do not get flooded from more higher risk zones.
However, this form of segregation and protectionism is nothing compared to what is unfolding on the global scale, as international flights remain ground to a halt, as countries continue to keep their borders closed virtually to everyone.
This is necessary to help stop the spread of COVID-19 and has largely been effective, however, as I have written about numerous times recently, it comes with a tremendous economic cost that we are going to be paying for, for decades to come.
Now, as the zeitgeist continues to shift in this direction, a risk from last year has once again flared to the forefront, the United States and China trade wars, which are back in full force.
These renewed tensions come at a very unfortunate time for China, as country after country have begun questioning China over their initial handling of the coronavirus crisis and what many believe to be a lack of information sharing / warnings to the global community about what was truly unfolding in Wuhan.
The European Union, United States and Australia are just a few calling for a formal investigation into the matter, based on assessments conducted by their intelligence communities.
This of course has greatly angered the Chinese government, who have placed their own blame on others, most notable the United States, who they initially blamed for spreading the coronavirus, a claim that has been widely dismissed by others in the international community.
The true source of the virus is yet unknown, despite the numerous conspiracy theories that exist, claiming otherwise.
However, make no doubt about it, that the two key titans in this battle, as it has been in the past, are going to once again be the United States and China, who have already had hostilities mounting for years.
This has led to recent statements from President Trump, who believes that China is not upholding its end of the Phase 1 trade deal, struck between the United States and China in January, even going as far as to say that he would “tear up the deal”.
The Globe and Mail reports;
Beijing agreed to increase purchases of U.S. goods in exchange for Mr. Trump cutting some tariffs on Chinese products.
“If they don’t buy, we’ll terminate the deal. Very simple,” Mr. Trump told a Fox News virtual townhall last weekend. On Wednesday at the White House, the President said he would decide by the end of next week whether to tear up the agreement. And he laced into Beijing for failing to contain COVID-19.
This is really the worst attack we’ve ever had. This is worse than Pearl Harbor. This is worse than the World Trade Center,” he said. “It should have never happened. It could have been stopped at the source. It could have been stopped in China.”
This renewal in tensions initially sent markets lower, as the risks of a full blown trade war once again reared its ugly head.
Although markets recovered somewhat, safe haven assets such as gold and silver bullion continue to be bought, with silver most notably experiencing significant gains.
Further gains for precious metals are likely in store as well, while pressure on the broader markets is likely to remain with President Trump following through on his threats, taking action against the Chinese company Huawei, attempting to cut them off from global chip suppliers.
The Trump administration on Friday moved to block shipments of semiconductors to Huawei Technologies from global chipmakers, in an action that could ramp up tensions with China.
The U.S. Commerce Department said it was amending an export rule to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.”
This news once again sent futures tumbling lower, with many market participants beginning to finally realize that this will not be the last volley, from either side.
Now comes the inevitable retaliation from China, with the game continuing on as it always does, with neither side truly winning in the end.
The trade wars are back on the table, another threat to the global economy is here to stay and will likely only resolve itself after much more damage is done, at a time when the world already stands on the brink of economic collapse.
However, I believe that the risks of escalation are higher than ever before, as I previously mentioned, the zeitgeist has greatly shifted in the minds of a significant portion of the population and as protectionism gains in popularity due to the continued threat of COVID-19.
The question is, where will this all end? Will the West bring its manufacturing base home, or will it continue to outsource large sectors of its manufacturing, including medicine, to China?
Regardless of the end result, incredible volatility lies in store and risks to the current system remain everywhere.
Stay safe and keep stacking.
- Source, Nathan McDonald via the Sprott Money Blog