Trade conflict ripples through emerging markets

13th July 2018
Resources Rising Stars

Emerging markets could become collateral damage in an escalating trade conflict where the U.S. is squaring off against China and Europe (report The Wall Street Journal).

The first tariffs levied by the U.S. and China went into effect Friday, but worries over the trade spat have already rippled through a broad range of emerging markets, hurting prices for stocks, bonds and currencies from Indonesia to Brazil.

Export-dependent Asian economies may be especially vulnerable, and major stock markets in the region have tumbled in recent weeks. A significant portion of U.S.-bound exports from countries like Malaysia, South Korea and Thailand pass through China, thanks to its central role in the global supply chain.

Investors also believe the trade conflict is slowing a revival in global growth, stoking worries over demand for raw materials and hurting the economies of commodity exporters. Weaker copper prices have weighed on exporters like Chile, dragging the country’s peso down 2.9% since June 1.

It’s not all bad news. The trade conflict may benefit some Asian companies and industries, especially if duties on U.S. products lift demands for local substitutes. For example, U.S. soybean tariffs could spur demand for palm oil products from Malaysia and Indonesia. Recent trade data showed China importing fewer U.S. soybeans and more from Brazil even before the tariffs took effect.

 

Image via Asia Times

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