There is no playbook for a US-led trade battle

It’s not a straight-forward trade

The easiest lens to view and global problem through is risk aversion. That means that if there is trouble, but the yen, Swiss franc and US dollar (in that order).

The problem is that model is far too simple. The US dollar is vulnerable to domestic factors. It hit record lows at the dawn of the US housing crisis before the problems went global.

A trade war is tricky because there are two sides in every battle. In a tussle with Mexico, the US easily wins because it’s a far larger economy and the destination for the bulk of Mexican exports.

Even in a NAFTA battle and a fight with the EU, the US can hold its ground. For me, the tipping point is China. White China is a massive exporter, it’s also a global heavyweight and investment flows from China are massive. Trouble would also threaten the supply chains of many US companies and weaken the economy.

Increasingly, I expect China-US trade headlines to weigh on the US dollar against everything else and especially against the yen and Swiss franc.