http://feeds.bignewsnetwork.com/redir.php?jid=821d6789950accb0&cat=3a8a80d6f705f8ccWASHINGTON – It is almost a truism in economics circles that nobody wins from a trade war, but even a whiff of such an outcome between two of the world's biggest economies is jangling nerves in boardrooms and dealing rooms.
The severity of the impact a tit-for-tat trade war between the United States and China would have on the global economy may mean cooler heads in Washington and Beijing will prevail.
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But, with the rhetoric on either side increasingly heated on issues ranging from China's fixed currency peg to soaring textile imports and intellectual property rights, the risk is entrenched positions are difficult to reverse, experts reckon.
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"There is clearly some kind of unease out there on world markets and one of the risks is trade friction with China," said Larry Kantor, Global Head of Economics at Barclays Capital. "People generally nervous about economic weakness."
A trade war between the main engines of the world economy would be a big negative for growth, and investors would likely seek top-rated government debt and retreat from equity.
The dollar may also benefit, as a protectionist environment would lessen the chances of an upward revaluation of the yuan and other Asia currencies, analysts said.
"Certainly the markets are already trading like they are nervous about something like a trade war," said Kantor.
The dollar is up almost 10 percent this year, U.S. and European bond yields are sliding and world stocks are 4 percent off March highs.
Benchmark world shipping prices ), seen as one bellwether of trade volumes, are down 35 percent in six weeks.
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Democrat Sen. Charles Schumer and Republican Sen. Lindsey Graham have authored a bill threatening China with 27.5 percent across-the-board tariffs if it does not revalue the yuan. That bill has been guaranteed a Senate vote by the end of July.
Treasury Secretary John Snow said last week he expects China to loosen its yuan peg within 6 months. But this carried the implicit threat that if China doesn't move it will be named as a currency manipulator and face formal trade retaliation.
Beijing has reacted angrily, saying it will move on the yuan when it sees fit.
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Get it through you heads Bush the Chineese are saying screw you!!!