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What a Trade War Means for Asian Bonds

By Advisor Perspectives
Capital Markets

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Media reports have been focusing on a “trade war” following President Donald Trump’s decision to impose tariffs on up to US$60 billion in Chinese imports, targeting technology products. Beijing responded by imposing its own taxes on U.S. imports. The result has been an increase in market volatility on both sides of the Pacific. We believe news reports of protectionist measures are mostly noise and that investors should instead focus on long-term fundamentals.

Both good and bad trade war scenarios are possible. The good scenario is that tariffs are meant to get other countries to the negotiating table to encourage them to open their markets and initiate economic reforms. The United States-Korea Free Trade Agreement (KORUS FTA) is an example of U.S. actions to induce open markets. The bad scenario is one where countries are imposing tariffs for the sake of imposing tariffs, introducing more protectionism. Even in this scenario, the tariffs on US$60 billion of Chinese imports would affect only a small fraction of the Chinese economy.

Read more at Advisor Perspectives.

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