Trade War Looming?

With the ending of Trump’s term as US president, there was a sincere hope that the world would enter a phase of more harmonious relations. Following the destructive nationalism and protectionism that Trump displayed, picking fights with China, Europe, Japan and just about any other country he could, the bar was set very low for incoming democrat president Biden to fare better. However, in a cruel twist of fate it seems we are once again back to the prospect of trade wars.

US Threatening Fresh Tariffs On UK

The Biden administration has threatened the UK with a fresh set of 25% tariffs casting fresh doubt over the likelihood of the two nations agreeing a trade deal. The US has threatened to apply the levies to a wide range of goods following the UK applying a similar tax to US tech firms. The UK Digital Services tax which comes into force on Thursday (April 1st) will apply a 2% tax on the revenues of search engines, social media platforms and online market places which operate in the UK, or have UK users. However, during talks between the UK and the US regarding the tax change, the UK was keen to stress that the move was seen as procedural rather than an escalation of trade policy.

Response To UK Tech Tax

Despite the UK’s justification, it seems the US is not happy with the tax and will now seek to recover the lost capital through its own taxes which should raise around $325 million annually, the amount the US judges it will lose through the Digital Services tax. A spokesperson for the UK government said that it was designed to “make sure tech firms pay their fair share of tax”. In response to news of the threatened counter-measures, which were first initiated under Trump but have been continued by the Biden administration, the spokesperson said: "Should the US proceed to implement these measures, we would consider all options to defend UK interests and industry." Traders now await the next move as the US is due to consult on the proposed tariffs over the next few weeks.

Technical Views

GBPUSD

GBPUSD has broken below the rising channel from last year with a retest of the underside of the channel currently holding as resistance. While the channel-break holds, the focus is on a further correction lower towards the 1.3516 level next. Bulls will need to see price back above the 1.3989 level quickly to alleviate downside pressure.

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