25 Jun

Can China’s Stimulus Help It Balance Trump’s Trade Rhetoric?

WRITTEN BY Mark O'Hara FEATURED IN Company News, Insights, & Analysis

China’s stimulus

According to Bloomberg, “China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity, as it seeks to control leverage and support smaller companies.” As we noted previously, China’s economic data in May showed some moderation in the country’s economic activity. In 2015, when concerns emerged about the Chinese economy, the country resorted to currency devaluation and interest rate cuts to boost its sputtering economy.

Can China’s Stimulus Help It Balance Trump’s Trade Rhetoric?

Growth

We saw stimulus-fueled growth in China in the last two years. Looking at the current scenario, President Trump’s tough trade rhetoric could hurt the Chinese economy. With uncertainty about how far the US-China trade war will go, businesses might delay their investment plans. Uncertainty about tariffs and their impact could drive consumers to delay purchases, especially of high-value discretionary goods from major copper-consuming sectors like real estate and automotive.

Currently, no one knows how the trade war will eventually play out. However, other countries have hardened their positions in response to President Trump’s tariffs. Along with China, India and the European Union have also slapped tariffs on US goods.

Export sector

If China’s export sector is threatened, China could also look at currency devaluation—something that the country has done in the past. However, currency devaluation could escalate the tensions between the US (SPY) and China.

Although copper’s long-term fundamentals look strong amid growing demand for electric vehicles, copper has a few positive triggers in the near term. Copper miners like Glencore (GLNCY), Southern Copper (SCCO), and Antofagasta (ANTO) could also continue to display volatility as the trade war unfolds.

Next, we’ll see how Grasberg risks could impact Freeport-McMoRan (FCX).

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