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lundi 30 septembre 2019

Conflict of global trade giants

In August 2007, the New York Stock Exchange had fallen by 3%, heralding the beginning of a global financial crisis that would last several years and the after effects are still there.

On August 5, 2019, the S &  not to be overlooked in an increasingly unstable global context. The confrontation between China and the United States, the world's two largest economies, can not fail to impact the global economy. On August 1, Trump threatened to apply 10 percent customs duties on $ 300 billion worth of Chinese goods. In response, China has decided to devalue its currency, letting it slip below the threshold of 7 yuan a dollar, a decline of 1.4% in one day. According to the United States, this measure reflects the desire to combine the commercial weapon with the monetary weapon. Thus, the trade war would be spreading to the foreign exchange market.

The stock market, meanwhile, indicates a 5.8% decline in the S & P 500 index during the first week of August. But it is especially the bond markets that present worrying signals in the world of finance. For example, on August 1, at the end of the year, the 10-year US Treasury yield rate fell by 2.06% in one week to 1.72%, and 1.6%, on August 15th.

The massive holding of US Treasury bonds by China and the fall in the value of the yuan would explain this negative evolution of the rate of return. Thus, China not being disarmed, did not remain indifferent to the threats of Trump. Paul Blustein, a financial analyst at the Center for International Governance Innovation, said: "By devaluing their currency at such a tense time, the Chinese are signaling that they are ready for heavy sacrifices. I am not surprised that the markets are finally reacting and saying that all this could really go wrong. "

It is therefore clear that the trade war is no longer confined to the field of trade. In fact, the slowdown in the Chinese economy is the real cause of the decline in the value of the yuan, despite the intervention of the central bank of China to control the flow of capital abroad. By letting go, the yuan has only moved to its real value in the currency market. On the contrary, Trump seems determined to resort to the monetary weapon, in addition to the commercial weapon, by demanding a reduction in the interest rate from the Federal Reserve.

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