China’s rare weapon

The breakdown of US/China trade talks and President Trump’s decision to add a further layer of tariff s on Chinese imports leaves Beijing grappling for a response. One such tool could be implementing restrictions on rare earth mineral exports, a critical input into many high-tech products — and thus extremely disruptive for a swath of industries. We already think equity markets are underestimating trade risks and such Chinese retaliation would compound that gap. We remain negative on US stocks. Risk aversion should continue to underpin the dollar.

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