The US and China: A New Trade Confrontation

[Ben Graham]

Yesterday, Beijing warned against further tariff increases, while the US promised to maintain high tariffs on Chinese goods. It is clear that the new substantial tariffs imposed by Donald Trump on Tuesday have once again taken center stage. This decision, part of the ongoing trade confrontation, has raised concerns across global financial markets and among economists, who predict further escalation of the conflict.

China's reaction was immediate and sharp. Beijing called Washington's actions counterproductive and unacceptable, stating that it is ready to take retaliatory measures to protect its national interests. Experts believe this could involve imposing similar tariffs on American goods, as well as other restrictive measures that could affect American companies operating in the Chinese market.

On the US side, however, there are statements of intent to adhere to the chosen course. The White House insists that high tariffs are a necessary tool for balancing trade and protecting domestic producers from unfair competition. According to the Trump administration, China has long used non-market practices to gain a competitive advantage, and the new tariffs are meant to rectify this.

US Trade Representative Jamieson Greer stated on Wednesday that Trump wants to maintain tariffs on Chinese goods in the range of 35% to 50%, reiterating previous statements that the Supreme Court's decision to cancel large emergency tariffs will not affect most other tariff restrictions. "We expect this level to be maintained," Greer said. "We do not intend to escalate the situation. We plan to stick to the agreements reached earlier."

Earlier that day, China threatened to take all necessary measures if the US implements new tariffs, after Washington indicated that its investigation into the 2020 trade deal would continue. Beijing confirmed that it wants to use the existing consultation mechanism to reach a consensus.

It's worth noting that Trump plans to visit Beijing on March 31 to discuss with Xi Jinping extending the tariff ceasefire between the two countries. This will be the first visit by an American president to China since his 2017 trip.

The Supreme Court's decision last week added new confusion to this agreement and undermined some of the Republican leader's leverage, forcing both sides to vie for advantage and explore possible tools. If tensions escalate, China could once again restrict exports of rare earth elements, while Washington retains leverage through its advantages in software development for chip design, jet engines, and aircraft parts. It is clear that both sides are attempting to avoid a new escalation, and Trump's State of the Union address this week marked the first instance in two decades where a US president did not mention China directly.

The currency market responded with a slight strengthening of the US dollar.

Regarding the current technical picture of EUR/USD, buyers need to focus on reclaiming the 1.1830 level. Only this will allow for a target test of 1.1855. From there, it may be possible to climb to 1.1875, but doing this without support from major players will be quite challenging. The furthest target will be the high at 1.1905. In the event of a decline in this trading instrument, I expect major buyers to take serious action near 1.1800. If no significant presence is there, it would be prudent to wait for the update of the low at 1.1775 or to open long positions from 1.1745.

As for the current technical picture of GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3500. Only this will enable a target toward 1.3540, above which it will be quite difficult to break through. The furthest target will be the area of 1.3565. In the event of a decline, bears will try to gain control over 1.3460. If this is achieved, breaking the range will strike a serious blow to the bulls' positions and push GBP/USD down to the low of 1.3430, with the prospect of dropping to 1.3400.

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