Since his election back in 2016, it’s safe to say that Trump’s Twitter account has been the source of a fair amount of controversy. In just 280 characters, the President of the United States has caused insult to immigrants, travellers, NFL players and more, as well as true damage to his own integrity and potential law cases. While his supporters rally to Twitter to show their agreement with his thoughts, there’s no denying that the President’s Tweets sometimes have an adverse effect and one of the most staunchly affected industries is the financial one.

Trump’s tweets are so often badly responded to, that the financial markets tend to see drops and fluctuations before the reaction can even take place. In fact, the sheer speed of fluctuation in the financial world today as a result of political unrest has shown us one too many times that being prepared in trading is key. Whether it’s getting to grips with the market using a demo account or doing a spot of copy trading, you certainly wouldn’t be alone in approaching today’s markets with caution. We’re digging a little deeper into just what Trump’s announcement has done, and why China are retaliating.

Trump’s Tweets

At the start of August, the USD appeared to be performing pretty well. The Federal Reserve announced a cut to interest rates, which ultimately helped the dollar withstand it’s position against other currencies in the foreign exchange market. Touting weak global demand and therefore weak inflation as the reason for the cuts, the Fed’s move actually worked in favour of the USD following a reassurance by Chair Jerome Powell that this cut was not the start of a long line of recession-style moves. Of course, this positive domination would only last so long.

On Thursday 1st August, Trump took to his beloved Twitter account to announce new tariffs on Chinese goods. In a series of Tweets, the President said:

“Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural product from the U.S. in large quantities but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die!”

“Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%. We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!”

Of course, the positive sign off was quickly proven to be false when both China, and the Forex markets reacted poorly. Asian share prices plummeted in trade markets, with the Tokyo Nikkei down 2.3%, the Kospi in Seoul was down 0.8% and the ASX200 in Sydney even fell 0.3%, despite reaching an all-time high earlier in the week.

For the U.S, this means that the USD also fell, sending stocks in Europe and the US into turbulence as the week drew to a close. The proposed tariffs would ultimately mean that most of China’s exports would be covered, pushing up prices for the consumers and, as expected, this hasn’t set well with U.S citizens.

China’s Retaliation

As a result of this announcement, the trade war appears to have heated up with China releasing their own retaliatory changes. With reports that the country has halted all US agricultural imports, this will be hitting at a sensitive issue for both countries.

In June, Trump and Chinese President Xi Jinping met at the G-20 summit, where Trump claimed he had secured a large quantity of agricultural purchases. However, when these purchases reportedly didn’t happen, he went on to accuse them of not going through with their word and, as a result, introducing these new tariffs.

However, China have claimed that Trump’s accusation is false. Bloomberg News reported that China has stated they are waiting to see how trade negotiations continue in the future, essentially taking a careful stance before making any purchases. Despite this claim, Trump has gone ahead with the tariff changes regardless, causing China to respond in kind.

Another potential retaliation has come in the form of offshore trading of the Chinese Yuan changing hands at 7.0304 against the U.S Dollar, a sharp weakening compared to it’s previous performance. China’s central bank have previously stated that they are able to keep the currency relatively stable, and so this sudden drop appears to be a bit of a retaliatory move.

Trump has responded to this currency move, accusing China of currency manipulation, and stating that this will “greatly weaken China over time”. However, if the move is as controlled as Trump believes it is, this weakness could all just be a verbal attack with little substantial backing.

Regardless of whether you believe China have moved their currency purposely, whether you’re a supporter of the Trump administration, or this all feels like a bit of a headache, the speed at which the U.S financial markets are changing is something we need to be paying attention to. Regardless of whether you’re a seasoned trader or you’re just interested in the forex market, make sure you watch this space.

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