NZD/USD plunges to near 0.5660 as US Trump tariffs loom large
- NZD/USD dives to near 0.5660 amid fears of fresh tariffs by the US on Wednesday.
- The Chinese economy is expected to face a significant burden of Trump’s tariffs for holding the highest trade surplus among US trading partners.
- Goldman Sachs sees higher chances of a recession amid Trump tariff jitters.
The NZD/USD pair is down almost 1% to near 0.5660 during North American trading hours on Monday. The Kiwi pair plunges as the appeal of antipodeans has slumped, given their strong trade relations with China.
The New Zealand Dollar (NZD) plummeted as investors rushed to a safe haven ahead of the so-called “Liberation Day” on Wednesday, when United States (US) President Donald Trump will announce reciprocal tariffs. Investors expect China to face significant tariffs, given that it carries the highest trade surplus against the US among all its trading allies.
On Sunday, Trump confirmed that tariffs would hit all of its trading partners. Such a scenario will be unfavorable for global economic growth
Trump’s tariffs will also have a negative impact on the US economy. Financial market participants expect Trump’s economic policies could also lead to a recession. Analysts at Goldman Sachs have revised chances for a recession to 35% from their prior expectations of 20%. Their upward revision for recession risks was based on a sharp “deterioration in household and business confidence”, and statements from the White House officials indicating “greater willingness to tolerate near-term economic weakness” in pursuit of their policies.
On the economic front, investors will focus on the US S&P and ISM Manufacturing PMI data for March, which will be released on Tuesday. The US ISM Manufacturing PMI is estimated to come in at 49.5, lower from 50.3 seen in February. A figure below the 50.0 threshold is considered as contraction in economic activities.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.