Global update: US/China trade war escalates

Prime Minister Theresa May finally announced that she was resigning as leader of the Conservative Party on 7 June. Her decision triggered a leadership contest alongside rising concerns over the possibility of a no-deal Brexit. Elsewhere, share prices fell heavily in the US as the trade dispute between the US and China reignited.

  • The US raised tariffs on US$200 billion-worth of Chinese imports
  • Pro-EU parties performed reasonably well in European Parliamentary elections
  • Japan posted better-than-expected growth in Q1

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The likelihood of reaching a Brexit deal before the 31 October deadline receded further during May as Prime Minister Theresa May finally announced that she was resigning as leader of the Conservative Party on 7 June. Her decision triggered a leadership contest alongside rising concerns over the possibility of a no-deal Brexit. Meanwhile, in the European Parliamentary elections, the Brexit Party secured 32% of the UK vote, followed by the pro-EU Liberal Democrats on 20%. The FTSE 100 Index fell by 3.5% during May.

“The likelihood of reaching a Brexit deal before the 31 October deadline receded further”

Share prices fell heavily in the US as the trade dispute between the US and China reignited. At the end of April, both countries appeared to be moving closer to reaching an accord; however, early in May, US President Donald Trump unexpectedly announced that tariffs on over US$200 billion-worth of imports from China would rise from 10% to 25%. China subsequently retaliated, raising tariffs on US$60 billion-worth of US goods from 1 June. Elsewhere, in a surprising move, President Trump unveiled a tariff of 5% on all imports from Mexico; this tariff will rise by five percentage points every month until October, when it will remain at 25% unless Mexico resolves the issue of illegal immigration to the US’s satisfaction. The Dow Jones Industrial Average Index dropped by 6.7% over May.

European investors were cheered by a relatively robust performance from pro-EU parties in May’s European Parliamentary elections, although nationalist parties in France, Italy and the UK saw an increase in support. The economic outlook for the euro area has deteriorated somewhat, according to the European Commission (EC), which downgraded its economic growth forecast during the month. The EC now expects the euro area to expand by 1.2% in 2019, before picking up to 1.5% in 2020, once uncertainties surrounding global trade and policy have eased. During May, the Dax Index fell by 5% and the CAC 40 Index declined by 6.8%.

Imports fell more quickly than exports in Japan during the first three months of 2019, helping the country’s economy to expand at an annualised rate of 2.1% during the period, and confounding fears of a contraction. Nevertheless, share prices fell sharply in Japan during May, undermined by wider concerns relating to the ongoing US/China trade conflict. Over the month as a whole, the Nikkei 225 Index fell by 7.4%.


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