China suspended trade with Taiwan in response to the high-profile visit of the Speaker of the US House of Representatives, Nancy Pelosi, to the island. It is obvious that as political tensions increase, new disruptions in supply chains are likely, which will harm the economies of both countries. But is everything so terrible – let's figure it out.
As it became known, China suspended the import of some types of fish and fruits from Taiwan, citing excessive pesticide residues found in products last year. The export of natural sand used in construction was also banned. According to DBS Group Holdings Ltd., Taiwan's agricultural exports last year accounted for only 0.6% of total exports, and sand exports from China to the island amounted to just over $1 million last year. Therefore, the bans imposed are likely to have little impact on Taiwan's economy.
A greater risk will arise if Beijing expands restrictions or supplies are disrupted due to China's military exercises around the island. At the moment, it is necessary to monitor whether Beijing will expand trade bans on the manufacturing sector, especially on semiconductors and electronics, on which the entire economy of Taiwan depends.
China is Taiwan's largest trading partner, while bilateral trade increased by 26% compared to last year, to $ 328.3 billion. According to Chinese customs data, Taiwan has a significant surplus compared to China: exports from the island exceeded imports by $172 billion. Although Beijing could use this advantage by imposing sanctions on exporters, China fears retaliatory measures in the supply of semiconductors.According to economists, China unexpectedly blocked the import of pineapples from Taiwan last year. Later, in September, Beijing suspended the import of wax and apples. Even though most of the fruits produced in Taiwan are consumed domestically, most exports go to China.
However, yesterday the Ministry of Economy of Taiwan said that the impact of China's restrictive measures would be limited. According to a report by Taiwan's Ministry of Economy, Taiwan imported 5.67 million tons of sand and gravel in 2020, with natural sand accounting for about 8% of the total. The report says that more than 90% of Taiwan's imported sand and gravel comes from China due to much higher transportation costs from countries such as Vietnam.
The half-measures of the Chinese government force us to conclude that no one seriously expects a more active aggravation of geopolitical relations between China, Taiwan, and the United States. Most likely, everyone will soon forget about the recent visit of the Speaker of the US House of Representatives, and that will be the end of it – the White House's political maneuver was a success, and China had nothing to answer it with.
As for risky assets, the prospect of euro growth is limited. Only consolidation at 1.0190 will give buyers of risky assets a great chance. Therefore, the whole emphasis is shifted to this immediate resistance. Going beyond it will give confidence to buyers of risky assets, which will open a direct road to the level of 1.0235, which determines the further uptrend of July 14. A breakdown of 1.0235 will open the possibility of updating 1.0280 and 1.0330. In case of a decline in the euro, buyers need to show something around 1.0150. Otherwise, the pressure on the trading instrument will only increase. Having missed 1.0150, you can say goodbye to hopes for recovery, which will open a direct road to 1.0110 and 1.0080. A breakthrough in this support level will certainly increase the pressure on the trading instrument, opening the possibility of a return to 1.0040.
The pound has obvious problems with continuing the growth of the Bank of England meeting. Therefore, buyers now need to do everything to stay above 1.2140. If this can be done, we can expect a larger movement of the trading instrument and talk about updating 1.2200 with a further exit to 1.2235 and a return to 1.2290. A break of this range will easily return the pound to 1.2330 and 1.2390. With the breakdown of 1.2140 and the absence of buyers, the situation will change dramatically since the upward trend of July 14 will be broken, and many local lows will open up to sellers. If there is no one at 1.2140, we will strongly adjust to the area of 1.2100 with the prospect of testing a larger level of 1.2060.
