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The US-China Trade War and the EU Market

Does the China-US trade war impact the European market and to what extent? Take a look at this Vestle UK article and gain new insight.

The US-China Trade War and the European Market

If you haven’t been living in a cave for the past few months, then you must know that the trade war between the United States and China has been escalating after a long period of on-again, off-again. You don’t need to be a financial analyst to figure out that this trade war is going to have a substantial impact on the economies of both the US and China, and that both sides likely stand to lose a lot in the exchange.

If you thought, however, that the US and China were the only ones affected by the trade dispute, think again. When giants collide, everyone gets squashed and one of the first casualties could be the European Union. Let’s take a quick look into the possible impact of the conflict on the European economy.

The current trade war creates new risks for Europe

Europe has strong financial ties with the US and every damaging action to the US economy could quickly trickle down to the European economy. How come? Well, many companies in the US depend on China for both sales and growth, and if they experience losses, so will the European companies that are connected to their business. Meanwhile, any European company that has strong ties with China will find itself between a rock and a hard place. It can cut its ties with China and experience losses or continue dealing with the Asian superpower and risk being shunned by the US. It’s a lose-lose situation for European companies who have very little interest in the current trade war and not much to gain from it.

Global economy doesn’t like uncertainty

We live in an age of globalisation and when large economic players experience difficulties, the global economy is not likely to escape unharmed. More specifically, the current conflict can be seen as a significant threat to global economic growth. If the tariffs weaken the economies of the US and China, it could hamper the demand for various goods from the rest of the world – including Europe. That, in turn, could impact European consumers’ incomes.

The market has feelings

While it’s tempting to see the market as a combination of charts and numbers, every trader knows that the market also has sentiment, and market psychology is certainly a factor to consider. The continuing trade war has no set boundaries. Every decision adds to economic uncertainty all around the world and can quickly affect traders worldwide, Europe included. True, some so-called “safe-haven” instruments have historically benefitted from market uncertainty, but this is not likely to contribute to large European companies, since stocks historically tend to react negatively to market instability and uncertainty.  

Is there an upside?

If we had to look for a bright side, we could point out that growing supply can be good for consumers. It is possible that with more goods diverted from the US and China, the prices of certain products might decrease, but it’s hard to assess if this will happen and to what extent.

Also, short traders might see a silver lining even if the markets experience turmoil since, as Vestle UK specifies, CFD traders can always choose to short or long their position.

There are many other factors involved

We hope we don’t need to tell you that in such a complex situation there are many other factors that could affect the performance of the European economy. For starters, President Trump is also threatening to impose tariffs on vehicles imported from the European Union, and the European Union has already prepared a list of imports from the US that could potentially face higher tariffs in retaliation. Also, with growing internal tensions, Brexit, debts and immigration, Europe has a lot on its plate, and it might be difficult to assess the exact effect of each factor separately.

It is clear though that the European economy has many challenges and that the US-China trade war is not going to make things better. How will it all end? Only time will tell.

 


The materials contained on this document have been created in cooperation with Vestle UK and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 59.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.co.uk/legal/analysis-disclaimer.html

Oliver

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