Exploring The Reasons Behind Trump Backing Off China

On Tuesday morning, US President Donald Trump announced that he was not going to implement any tariffs on a set of Chinese-made goods. Vox reported that this announcement was met by positive changes on the stock exchange as shares went through the roof.

A week ago, these financial markets were on the decline as the Trump administration promised that they were going to impose additional taxes on Chinese goods. This was also after the US government accused China of being a "currency manipulator."

In any case, the policy changes appear to be very minimal at best with very little implications. The market reaction also appeared to be very sudden. Traders might have jumped at the chance to trade at higher prices as they reacted to Trump's policy change in a manner similar to "reading the tea leaves."

China's designation as a "currency manipulator" also had very little effect on changing policies in either Washington or Beijing. It was more a move designated to escalate the trade dispute and a sign that Trump is getting ready for pre-elections by manipulating the feud to make it look like the president is keeping US businesses' best interests at heart.

The US' backing down may be good news to China, which is expected to navigate slowly for the rest of the year. SCMP noted that the uncertainty of dealing with the US' trade policies is a major reason for the Chinese government treading the trade waters with caution. It could also weigh the economy down heavily, given that the government is counting on consumer actions to play a big part in helping lessen the effects of the trade war.

The consumer won't be coming to the rescue because the average Chinese consumer is also feeling the effects of the trade war, according to senior China economist Julian Evans-Pritchard. The trade war is affecting consumption negatively because it stifles real income growth, among others.

Meanwhile, Apple share prices jumped up by about 5% as the Trump administration decided not to push through with its tariff imposition. Other Wall Street players also improved, according to The Independent. Dow Jones and S&P 500 closed with a 1.5% improvement in their stocks.

Most of the world economies-including China-had been put under pressure by Trump's moves. No one knows what the US president is really thinking about by stepping back from imposing tariffs. The surge could be used by some of the president's advisers to press him to do a quick deal and help the stock market, but no one really has any idea of the president's plans.

© 2019 Business Times All rights reserved. Do not reproduce without permission.
Sign Up for Newsletters and Alerts