What is a Trade War?

Understanding Trade Wars

A trade war occurs when countries escalate tariffs, quotas, or other trade barriers to protect domestic industries or gain negotiating leverage. Each round of retaliation distorts supply chains, raises production costs, and injects uncertainty into global growth prospects—conditions that reverberate through currency markets.

How Trade Wars Escalate

• Tariff rounds: Initial duties prompt retaliatory measures, often expanding from targeted goods to broad consumer products.
• Non-tariff actions: Export controls, subsidies, and stricter regulations can intensify the conflict even without headline tariffs.
• Currency rhetoric: Governments may accuse rivals of manipulation, raising the risk of intervention or coordinated responses.

Forex Impact

Export-dependent currencies—such as CNY, KRW, and MXN—typically weaken during trade disputes, while safe havens like USD, JPY, and CHF gain as investors seek stability. Commodity currencies (AUD, NZD, CAD) can suffer when global demand expectations fall. Track equity indices and commodity prices; they often confirm shifts in risk sentiment sparked by trade headlines.

Trading Considerations

News hits unexpectedly. Keep leverage modest, widen stops around planned announcements, and diversify exposures to avoid concentration risk. If tensions drag on, central banks may adopt dovish stances to cushion growth, creating additional FX moves.