After months of strained relationships and continued world speculation on how far President Trump would go in the trade war with China, the two nations signed a trade deal on the 15th of January 2020. This is but the first step toward a wider ranging agreement.
The signing of the trade agreement should bring some relief to traders. Many would have adjusted their trading strategies in the wake of the trade war, for fear of losing money. For nearly two years economies around the world have been on shaky ground on the back of the trade wars
All knowledgeable traders know the effect that changes to global economic fundamentals can have on the value of financial instruments, both positive and negative. For those who seek clarity on such issues, a good trading platform will help you to determine the the best trading strategies under various scenarios.
Stock markets find relief
Experts are generally in consensus that stock markets will find some relief from the trade agreement. And indeed, we have seen some upward movement on stock exchanges around the world. Even though many of them had already priced in the agreement, stock markets reached record highs when it was signed. Those traders who had factored this into their trading strategies were no doubt smiling all the way to the bank.
This is just the first phase of the agreement. Many tariffs are still intact, and traders hoping to cash in on the next phase will watch the space with interest. It remains to be seen, however, whether the next phase will ever come to fruition. Earlier market jitters, when President Trump indicated that he wasn’t keen to sign the first phase will leave traders with little doubt as to the effects that uncertainty will have on the market.
Phase one and two
The first phase of the agreement includes a deal whereby the Chinese government will purchase $200 billion in US goods and services. This is despite the fact that $360 billion worth of tariffs remains in place on Chinese imports. Trump has also threatened to impose additional tariffs if the Chinese renege on any part of the agreement.
Phase two of the deal is expected to cover intellectual property protection and reforms in China. Chinese companies are notorious for stealing intellectual property. This was one of the primary reasons for the tensions between the US and China. The conflict has been stoked by China’s growing economic importance and its technological growth.
The effect of tariffs on the economy
Imposing tariffs on imports will initially have a positive effect on the economy of the country as citizens buy local goods and services to cash in on lower prices. Over the longer term, however, the economy will suffer as the import duties artificially raise prices and inflation becomes a reality.
In retaliation, importers of the goods and services of that country will raise tariffs of their own. This will negatively affect the number of exports, and the result will be a drop in manufacturing and job losses.
Economists have estimated that the trade war will cost the global economy as much as $800 billion in trade. It will reduce the global growth rate by 0.4%. Your trading strategies should take account of these uncertainties and factors in the downside effects.
Include protective measures in your trading strategies
Trading is always affected by economic uncertainties, but you can include some protective measures in your trading strategies.
- Protect your funds from unexpected shocks by setting a stop loss on your account.
- Clearly define your goals and keep a journal of your trading progress.
- Watch the trends they’ll still lead you in the direction that you want to go.
- Use platform tools to analyze the markets to ensure that you’ve understood the technical charts and fundamental basis of the changes happening.
- Be careful of short-term volatility and don’t overreact.
- Diversify your portfolio to reduce risk.
- If you’re trading on an internet platform make use of the power of 5G.
Without a doubt, the continued debate around the trade wars and the possibility that they may intensify has added to the uncertainties that traders face in the new year. With careful planning and attention to detail, you can ensure that you weather the storm and grow your assets.