Soy Long

Atlas is a peaceful bunch.  We don’t like wars, including those revolving around trade.  But everywhere one looks it seems like nations are turning their backs to one another.  Instead of finding new ways to work together and prosper, countries are looking for new barriers.  This is not just a recent phenomenon.  Brexit started off two years ago as the U.K. looked for better deals with those nations in the European Union; this divorce will begin at 11 PM on Friday, March 29, 2019.  More locally, the North American Free Trade Agreement is being renegotiated.  Other measures are also being taken which will impact trade around the globe. 

Today, China and America are in a bit of a tussle.  It is quite fluid, with changes in posturing seeming to occur almost every week.  The Trump administration announced that tariffs will be imposed on $50 billion of Chinese goods starting on next Friday.  In response, China threatened to curb imports of U.S. soybeans, our largest agricultural export to China.  Word from the White House is that we are not in a trading war because the conflict was lost years ago, and now it is time to set things right.  Spin it any way you want, trade is being weaponized.

Simultaneously, our central bank has started making their policies more restrictive by raising short-term interest rates.  This tends to result in a stronger greenback as higher rates incentivize large pools of foreign money to be exchanged into U.S. dollars, bidding the price of our currency up.  So are these rate hikes, at least partially, neutralizing the administration’s tariff regime?  For instance, does America’s monetary policy put China in a unique position?  Are we unintentionally giving them an edge? 

As our dollar strengthens against the Chinese yuan, goods purchased from them should be getting less expensive here in America, at least partially offsetting the tariffs, weakening their intended effect.  There has been little mention about this phenomenon so far, but it could begin making more headlines as our two nations trade barbs.  The form such commentary takes could prove quite interesting.

President Donald Trump considers himself to be a low-interest rate guy, so it would not surprise Atlas to see a tweet or two in the future about Fed policy.  But, even more likely, watch for him to start accusing the Chinese of currency manipulation again if their yuan continues its fall against our dollar in the currency markets.          (by Christopher and J R)