US President Donald Trump stated that China is manipulating the Yuan to counteract tariffs. He announced plans to impose additional tariffs on pharmaceuticals, highlighting that China faces a 104% tariff.
The AUD/USD pair was observed trading 0.04% higher, at 0.5960. The US-China trade war began in early 2018 due to tariffs imposed by Trump over concerns about unfair practices and intellectual property theft, prompting retaliatory tariffs from China.
Us China Phase One Trade Deal
Following the signing of the US-China Phase One trade deal in January 2020, tensions decreased but persisted. Trump, now re-elected, has proposed imposing 60% tariffs on China, aiming to reinstate previous policies and affect the global economy.
Trump’s latest remarks about currency manipulation reintroduce a familiar tactic, particularly via accusations that Beijing is intentionally weakening the Yuan. By allowing its currency to depreciate, China could be trying to buffer the impact of tariffs, which would make its exports relatively cheaper abroad despite the additional levies. If such moves continue, they are likely to influence expectations not only in foreign exchange markets but also across rate-sensitive instruments.
His indication of fresh tariffs on pharmaceuticals, especially citing that China is already encountering upwards of 104% in duties, underscores a renewed push towards aggressive protectionism. This could potentially lead to price distortions in specific sectors, notably healthcare and manufacturing, that rely heavily on cross-border supply chains. Those exposed to sector-specific risks, particularly where short-term fluctuations in import costs or demand destruction are plausible, should begin running new stress tests. Risk metrics will need tightening.
Since the initial rows between Washington and Beijing in 2018, cross asset volatility has tended to rise during periods of tariff announcements and de-escalations. While the Phase One deal brought temporary calm, the re-election of the same administration now reignites speculation around a more combative stance. The potential implementation of 60% tariffs should not be dismissed as mere posturing, particularly given the direct references to reinstating earlier trade measures.
Trade Tensions And Market Impact
In the FX sphere, AUD/USD climbing slightly to 0.5960 might reflect short-term softness in the greenback or stabilisation in Asia-Pacific sentiment. But these gains look delicate. Given Australia’s heavy exposure to China both in terms of trade and as an end-market for commodities, it remains highly sensitive to fluctuations in Chinese economic fortunes. A ratcheting up of trade tensions will likely increase two-way risks for the pair.
We should prepare for higher noise in tariff-sensitive markets, with a likely increase in day-to-day fluctuations. Traders in interest rate derivatives will need to stay equally attentive, especially to forward curves that might reprice quickly if signs of supply chain bottlenecks or inflation impulses emerge from these trade disruptions.
There’s also the issue of confidence. Multinationals may hesitate in capital allocation or hiring plans if they perceive uncertainty returning on trade policy. That often introduces unexpected downdrafts in economic momentum or earnings outlooks, which in turn can affect a wide swath of correlated assets. Pay closer attention to volatility surfaces in index options and commodity-linked FX as shifts could appear faster this time around.
The possible reversion to old measures, especially if done at scale, doesn’t just stir bilateral trade balances – it resurrects a climate where long gamma positioning may turn out more favourable than short-side bets.
