Volatility Over Potential China “Trade War” Isn’t Over Yet

The news concerning forecasted Fed rate hikes, inflation projections, and a potential trade war with China have shaken up the markets since February of this year. It seems as if the only thing “certain” in this uncertain economic environment is volatility.

Perhaps the Trump tariffs aimed at China are a means for the U.S. to open further negotiation, albeit from a “hardline” position.

Although “trade war” headlines have receded in the last few weeks, the uncertainty isn’t over as China.  A recent report published by the New York Times, states that “China is set to take a hard line (against the US).”

On the week of May 1, American officials arrived in Beijing to discuss, among several matters, two of Trump’s biggest trade demands:

  • Reducing America’s annual $375 billion trade deficit with China by imposing a $100 billion cut; and
  • Curbing Beijing’s plans to bankroll, up to $300 billion, ts development of advanced technologies including AI, electric vehicles, and semiconductors among others.

It’s reasonable to assume that China doesn’t see itself occupying a position to accept, let alone submit, to such demands. The reason for this, according to the Times, is simple: “Beijing feels its economy has become big enough and resilient enough to stand up to the United States.”

The main point: China’s hard line position will either force the U.S. to scale back its demands, or escalate.

If we were to guess how Trump might respond, backing down would be an unlikely response.

And if we were to speculate on how such moves/countermoves might play out in the economy and markets, it would be safe to assume that our current period of volatility might extend well into the future.

What might this mean for you as an investor or trader?

For “investors,” at least for those who seek to avoid market volatility, the circumstances surrounding our current trade relations with China may not be favorable. You’ve seen how the markets have behaved during the last few months. Not pretty for those who seek steady returns.

For “traders,” meaning those who seek the waves of momentum that come with volatility, this news signals the possibility of yet more opportunities and risks in the coming months.

A couple of caveats:

  • Technical traders should constantly be aware of fundamental developments, as avoiding them can result in a nasty, unexpected, and potentially devastating sideswipe.
  • Fundamentally-driven short-term traders, on the other hand, might want to be cautious of the rapidly changing geopolitical environment, as fundamental projections can change in a flash; as quick as a Trump tweet.

Watch your setups when trading a fast and news-driven market!

Remember that trading a volatile market is like playing with fire: if you’re not careful and precise, you can get burned! This advice also applies to regular market scenarios.

If you plan on trading the markets during a potentially big moment of change – such as a potential trade war – then it’s imperative that you have your risk parameters and trade setups in place.

If you are unsure as to how to do this, check out our trade setup tutorial. It’s also important to have a good command of your platform, as markets tend to move faster during periods of high volatility. If you are not comfortable with your current platform, request a demo of a new trading platform. Our in-house tech support is available to provide you with technical assistance to help you learn how to use your trading platform more effectively.