DCN0718_Combined_150

CURRENCIES, GEO-POLITICS & TRADE
Markets in the age
of Trump
Paul Bettany takes a look at currencies, geopolitics
and how they impact upon international trade
Above: Paul Bettany, foreign exchange
partner, Collinson & Co
THE G7 AND THE TRADE WARS
Financial markets have been mesmerised
by geo-political events enveloping the
globe. The G7 is always a fantastic event
for leaders to prance around the world
stage and bask in the media spotlight.
The talk-fest has always ended with
an agreed-upon communiqué, signed
by all participants in a show of world
solidarity. The build-up was enormous,
with verbal jousting surrounding the
emerging “global trade war”. The US,
under President Donald Trump, has
been threatening all its major trading
partners with a reality check on tariffs.
Trump has looked at the massive
trade imbalances suffered by the US
and concluded the multi-lateral trade
agreements are neither fair nor free. The
EU, China and Canada (under NAFTA)
have all seemingly taken advantage of
unfair trade practices, employing many
protectionist measures and penalising
US exports. Meanwhile, the unfettered
access to the biggest market in the world
(the US), has been virtually unimpeded.
Trump is advocating reciprocal, bi-lateral
agreements, so all trading partners
operate under the same rules. This has
been vociferously rejected by the EU and
Canada, framing it as an attack on the
concept of free trade, while playing the
victim card. Trump has responded with
tariffs and dire warnings linking trade to
defence. The G7 seemed to accept this,
until his departure from the meeting,
when Canadian PM Trudeau launched a
scathing attack on the president (in his
absence). Result: a car crash, which will
cost the Canadians and Europeans $$$.
THE SINGAPORE SUMMIT
This G7 was a tumultuous event but
would soon be forgotten in the brave new
world of Trump. The speed and regularity
of momentous events occurring in
the world have increased in frequency
since the inauguration of the current
administration in the White House.
Trump flew directly from Canada to the
Singapore Summit, where he spent the
day negotiating with the North Korean
Communist Chairman Kim. This was a
historical occasion, resulting in a signed
agreement between the two leaders,
aimed at denuclearising the Korean
Peninsula. The G7 was way in the rearview
mirror. Trump and Kim cavorted
for most of the day in a world-first,
addressing the climacteric position the
region and the world find themselves in.
The results were, it seems, surprisingly
positive and look to be a great first
step in solving one of the world’s great
dilemmas. An agreement was signed and
the process is underway.
GLOBAL TRADE WARS
Trade remains a key issue in global
markets and a resolution may take some
time. The Europeans will have to sign
an amended trade agreement, balancing
tariffs and trade sanctions, or suffer
the consequences. Trump did offer a
proposal, namely to abandon all tariffs
between the G7 nations, but this was
summarily rejected. Trade is a major
factor globally and particularly impacts
trade-dependent, commodity nations,
such as Australia. The ebb and flow of
these developments therefore affect
the associated currency. The AUD has
suffered severe recent setbacks, although
looks to have stabilised, with recent
positive fiscal developments. The real
fluctuations are found in relation to the
reserve currency. The AUD experiences
more volatility measured against the
USD, rather than the EUR, which tends
to move in conjunction with the AUD.
Collinson & Co
52
First published in 1891
July 2018
thedcn.com.au