Trade disputes escalated last week advancing the battle with China and opening a new front against Mexico. The world seems to be all-in on trade.
China was on the offensive last week in the trade war. First, by canceling purchasing of US soybeans. This appears to be a direct hit at President Trump’s base. Second, China announced considerations to ban exports of rare earth elements to the US. China represents approximately 80% of the rare earth elements that are taken out of the ground. They also represent nearly all the refining of said materials. Third, China announced plans to establish their own blacklist of US companies. There are fears that this action will be direct targeting of companies that are now blocking Huawei.
In response to escalating border crossings, President Trump announced a 5% tariff on all goods from Mexico. These tariffs will be implemented June 10th. It will have a 5% monthly escalator up to 25%, or until Mexico curbs illegal immigration. A delegation from Mexico is coming to Washington to try and work out an amicable solution to the problem.
European Union (EU) Elections
The election of a new EU parliament was indicative of the last several years. Pro-EU parties lost positions, while populist parties gained seats. The majority of seats are still pro-EU, but they are losing ground. This will mean a more contentious rule making body. They will likely be less able to make headway, reducing the growth outlook for the region.
Markets weakened last week (with the exception of China). Market data would appear to support the concerns trade has caused. The silver lining is that consumer confidence has been increasing. Now we just need that to translate into consumer spending and as a result, increased corporate earnings.
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