Just as the markets had started to take a somewhat optimistic view of the new trade standoff between the U.S. and China, the Trump administration once again warned Beijing not to take retaliatory measures against foreign companies that assist the U.S. in developing critical industries. It's worth recalling that last week, Beijing imposed sanctions on the American divisions of a South Korean shipping giant over its plans to invest in the U.S. maritime sector.
Such actions undoubtedly undermine trust between the parties and create an atmosphere of uncertainty, which has an extremely negative impact on the global economy. Investors are highly sensitive to such signals and react sharply to this kind of rhetoric from both sides. The question now is how far the confrontation will go and what specific measures each side will take. The U.S. is clearly demonstrating its willingness to defend its strategic interests, while China, in turn, shows no intention of backing down under pressure.
"China's recent retaliatory actions against private companies around the world are part of a broader pattern of economic coercion aimed at influencing U.S. policy and controlling global supply chains by discouraging foreign companies from investing in American shipbuilding and other critical industries," said U.S. Trade Representative Jamieson Greer on Monday.
Greer's warning marks another step in the long-running maritime disputes between the U.S. and China — the latter accounting for more than half of global shipbuilding and seeking in recent years to strengthen its control over the strategically important South China Sea. This struggle carries major implications for the global economy, as ships account for more than 80% of international trade.
Although the U.S. has the world's most powerful navy, its shipbuilding capacity is relatively limited. For that reason, the Trump administration is seeking to support American shipbuilding by attracting investment from South Korea — the world's second-largest shipbuilder.
As Greer noted, the sanctions announced by China last week directly hit the U.S., prohibiting Chinese citizens and organizations from doing business with the American subsidiaries of South Korea's Hanwha Ocean Co., and threatening further retaliatory measures against the industry.
"Attempts at intimidation will not stop the United States from rebuilding its shipbuilding base and responding appropriately to China's targeting of critical industrial sectors in its bid for dominance," Greer said.
It's worth noting that both sides have introduced special port fees on each other's commercial vessels, which went into effect last week. The U.S. also plans to impose a 100% tariff on Chinese imports of essential port equipment and a 150% import tax on other cargo-handling machinery. With these measures, Trump aims to minimize Chinese companies' control over key global ports, including those around the Panama Canal.
Earlier on Monday, the U.S. president said he expects to discuss China's territorial ambitions regarding the self-governing island of Taiwan with his counterpart Xi Jinping next week at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea. The president sidestepped the question of whether he expects China to link trade concessions to demands related to Taiwan.
The foreign exchange market barely reacted to all this news.
As for the current technical outlook for EUR/USD, buyers now need to focus on reclaiming the 1.1645 level. Only this will allow them to aim for a test of 1.1675. From there, the pair could climb toward 1.1700, though doing so without strong support from major players will be quite difficult. The furthest target is the 1.1725 high. In case the instrument drops toward 1.1615, I expect significant buying activity from large traders. If no support appears there, it would be wise to wait for a retest of the 1.1580 low or open long positions near 1.1545.
As for GBP/USD, buyers of the pound need to reclaim the nearest resistance at 1.3405. Only this would allow a push toward 1.3440, above which further movement will be difficult. The furthest target lies near 1.3485. In the event of a decline, the bears will likely try to regain control over 1.3370. If successful, a breakout below this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3335 low, with potential to extend toward 1.3295.
