- U.S. hits China with $34 billion tariffs, Beijing slaps back
Last week, the world witnessed a significant development that promises to go down in the history of U.S.-China relations.
On Friday, July 6, the Trump administration started to collect a 25 percent duty from more than 800 Chinese products worth $34 billion.
As expected, Beijing immediately retaliated with its own list worth $34 billion.
Some considered these steps “the first shots of the U.S.-China trade war”, though many think the war had actually begun a few months ago when the U.S. put import taxes on steel and aluminum and China retaliated with counter-measures.
Despite the disagreement over the start date of the U.S.-China trade war, the next battle is expected to take place when the Trump administration plans to put the second part of its tariffs into practice.
President Donald Trump announced Friday that $16 billion worth of Chinese products would be taxed an additional 25 percent starting in two weeks.
Investors are becoming anxious as the U.S.-China trade war snowballs and as the risk of irreversible damage to the world economy heightens.
Last week, Fitch Ratings warned that U.S.-induced trade wars could cost the world $2 trillion in global trade.
“The U.S. investigation into auto tariffs, possible additional U.S. tariffs on Chinese imports, and the likely reactions of other countries and blocs, point to a potential serious escalation, albeit with an impact that falls short of across-the-board tariffs imposed on all major trade flows,” Brian Coulton, chief economist at Fitch, said in a report.
- “Intensified” trade war risks worry Fed officials
The minutes of the latest Federal Reserve meeting were among the most important agenda items last week as they revealed that Fed officials fear the negative effects of protectionist trade policies.
“Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending,” the minutes of the Federal Open Market Committee’s June 12-13 meeting said.
However, the minutes also showed that Fed members remain committed to gradual rate hikes.
“Participants generally judged that, with the economy already very strong and inflation expected to run at 2 percent on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020,” the minutes said.
- U.S. unemployment rises unexpectedly despite 213K new jobs
In last week's data calendar, the June employment report came to the forefront.
According to official figures from the Bureau of Labor Statistics, non-farm employment in the country increased by 213,000 in June, exceeding the market forecast of 195,000.
Despite better than expected job gains, the U.S. unemployment rate, which was expected to remain stable at 3.8 percent, rose to 4 percent.
The labor force participation rate provided a surprising increase in unemployment as it went up to 62.9 percent from 62.7 percent.
The average hourly earnings in June were up 0.2 percent month-on-month and 2.7 percent annually. Nonetheless, they failed to meet expectations of a 0.3 percent and 2.8 percent increase, respectively.
Even though markets focused mostly on higher unemployment and slow wage increases, analysts generally agree that strong job growth will keep the Fed on the path of gradual rate hikes.
- New week: Trade war, Fed messages, and headline inflation
The new week in the U.S. will start in the shadow of the trade war.
Global investors hope that Washington and Beijing administrations reach a deal before the negative effects of the trade war hurt the global economy.
As a result, statements from the U.S. and China will be closely followed.
Those who are curious about the effects of the ongoing trade war on U.S. monetary policy will likely focus on the speeches of Fed officials.
New York Fed President John Williams particularly stands out among the Fed officials who are scheduled to speak during the week. Other members include Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker Minneapolis Fed President Neel Kashkari.
In the weekly data calendar, the headline inflation, to be released Thursday, is expected to make headlines.