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Tit-for-tat trade war continues

September 2018

As the trade war between the US and China rumbled on, the US imposed tariffs of 10% on US$200 billion-worth of Chinese products, rising to 25% on 1 January next year, and China retaliated with fresh levies on US goods. President Donald Trump continued to criticise China’s “unfair trade practices”.

  • US interest rates rose to a range of 2%-2.25%
  • The US and South Korea signed a new trade deal
  • Consumer confidence continued to strengthen

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As the trade war between the US and China rumbled on, the US imposed tariffs of 10% on US$200 billion-worth of Chinese products, rising to 25% on 1 January next year, and China retaliated with fresh levies on US goods. President Donald Trump continued to criticise China’s “unfair trade practices”, insisting, “We have given China every opportunity to treat us more fairly. But so far, China has been unwilling to change its practices”. China posted a record trade surplus with the US of US$31.1 billion in August. 

“US interest rates increased to their highest level since March 2008”

The US and South Korea signed a new trade deal in September. The agreement included an annual exemption for up to 50,000 cars per US manufacturer from South Korean safety standards, alongside the exemption of a limited amount of South Korean steel from the 25% tariffs on imported steel that were announced in March. The deal also extends a 25% tariff against South Korean trucks until 2041.

US interest rates increased to their highest level since March 2008 during September as the Federal Reserve (Fed) implemented a rise of 25 basis points, taking the key federal funds rate to a range of 2% to 2.25%. This was the Fed’s third increase in the federal funds rate this year, and the eighth since 2015. Fed Chair Jay Powell described this movement as a “gradual return to normal”. 

During September, the Dow Jones Industrial Average Index achieved its 13th fresh high of 2018 so far, and its 101st since Donald Trump was elected President. Over the month, the Dow rose by 1.9%, while the Nasdaq Index fell by 0.8% and the S&P 500 Index posted a monthly gain of 0.4%. 

Consumer confidence strengthened during September to hover near an 18-year high, according to the Conference Board. Consumer spending rose by 0.3% month on month in August, having posted a gain of 0.4% in July. Spending has been boosted by sustained strength in the labour market that has also helped to support wage growth. Growth in average hourly earnings accelerated to reach an annualised rate of 2.9% in August, while the rate of unemployment remained at 3.9%.

Congress passed a temporary funding bill for the fiscal year beginning 1 October. Looking ahead, investors’ attention is likely to focus on political issues as the US midterm elections approach in November.


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