The art of trade war and the two schools of thought

There are two schools of thought concerning this last iteration of the American-Chinese trade war, and traders must cover themselves accordingly. Of course, there is the ugly School of Thought perspective where President Trump adheres to his campaign promise and imposes a price of 60% on China, but at the moment, it seems less likely.

The deployment of the rate at the slow boil

It is the brassard game with high issues that Trump and the Treasury Secretary Scott Bessent play – pushing the limits without collapse. The key date? April 1. It was at this time that Trump demanded a complete examination of the commercial policy, and the expectation is that this will lead to a more surgical and specific tariff approach, with a progressive implementation and long notice periods for any future hike.

Even if the last days felt like a political theater, the end of Trump is clear – he wants to rethink the global trade system in favor of America. The trick is to determine where the breakdown is due to the fact that too hard risks completely slam the rally of stock markets. As Mark Cabana de Boa pointed out, “the stock market is the dashboard of the American administration, and the policy changes that harm risk assets will be quickly covered”. To which I fully agree.

This means that Trump’s favorite pricing gaming could follow a 2.5%measured monthly deployment, carefully aligned with how the American stock markets hold. The administration has room to push as long as American exceptionalism, via the stock market objective, remains intact.

The theory of “China does not fight”

The second school of thought is that Beijing does not want any part of this trade war – not now in its current economic state. The Chinese economy is fragile and a full -fledged trade war would be catastrophic. The argument is that the burden of concluding an agreement falls on Trump.

Before climbing more, the United States will probably test how much Beijing is willing to “catch up” the so-called phase one trade agreement, which was signed in 2020. Apparent to “let’s do a big agreement” with XI which could redefine Completely American-Chinese economic relations.

Conclusion? The market is still determining which of these two ways will take the front of the stage – a tariff deployment measured and linked to actions or a surprise breakthrough which completely reshapes the commercial policy of American China. In any case, the deadline of April 1 is the moment of truth, and the positioning in front will be crucial.

FX markets (Yuan Watch)

The Yuan is not only a barometer of the trade war – it is the battlefield. Each fixation of the PBOC is now a live reading of the Beijing strategy, and the traders look at it as a hawk. The question is not if China lets the yuan weaken, but how much they soften the grip to absorb any new and potentially larger price shock.

Tuesday’s escalation sent a clear message – China does not back down. Beijing retaliated with his own prices, and Trump doubled, saying he was not in a hurry to repair things with XI. It is not only a bad sign – it is a flashing neon display panel “brace for more pain”. Market consensus? The PBOC will expand the Yuan trade band, letting it derive in decrease as a tactical weapon. But here is the catch – Beijing walks a thin line like a razor. A too light yuan is likely to trigger a hell of a capital escape, and that is the last thing China needs when her economy is already drinking.

On the ground in Shanghai, fear is real. Gold stores are flooded, people rushing to cover themselves against economic turbulence. Gold prices are breaking records, fueled by commercial war anxieties and global geopolitical instability.

Conclusion? The Yuan is now the pulse of the trade war. Each movement from here is a direct signal of the Beijing game book, and with both sides that digs, expect this motto match match to become even wilder. Strap in.