Currencies and Trade

Most analysts believe that recent trade developments, while certainly of concern, will not progress to a full-scale trade war. The theory goes that cooler heads will eventually prevail. But, if a trade war did develop, most believe it would be a major negative event for the worldwide markets. Are there ways to handicap the probability of a trade war?

One place to look is in the international foreign exchange markets, where traders carefully track the trade movements and make decisions based on the economic impact of changing trade flows and which countries will benefit or be hurt by changing trade patterns.

According to recent market prices, traders appear to be anticipating little to no worldwide fallout. South Korea, Taiwan, and Singapore are all very sensitive to global trade flows. Yet, they are trading near three-year highs vs. the U.S. dollar. In reality, the international market — and world commerce – -is growing at the fastest rate in six decades.

This is an important issue to watch because international trade is a complex and somewhat fragile network of collaboration. But, at present, it does not appear that the smartest folks in the currency and trade markets are not overly worried.