The recent visit by President Trump to China has left UK analysts scrambling to reassess the geopolitical landscape. As a veteran observer of global finance, I find the implications for markets and fiscal policy far more telling than the diplomatic niceties. The trip, ostensibly about trade and denuclearisation, revealed a fundamental shift in the balance of power.
First, the trade deficit. Trump’s obsession with the US-China trade gap is a red herring. What matters is the capital account. Chinese purchases of US Treasuries have been a cornerstone of American debt financing. If Beijing pivots away, the impact on gilt yields would be seismic. The Bank of England should be watching this like a hawk.
Second, the rhetoric on technology transfer. Trump’s complaints about forced intellectual property transfers are valid, but the real story is the accelerating pace of Chinese innovation. The market capitalisation of Chinese tech firms now rivals Silicon Valley. This is not just a geopolitical issue; it is a direct challenge to Western asset valuations.
Third, the North Korea question. The admission that China is the key to peace on the Korean peninsula is a tacit admission of American decline. Financial markets hate uncertainty, and the lack of a clear strategy from Washington is already driving capital flight to safe havens like gold and Swiss francs.
For UK investors, the lesson is clear: diversify. The era of American hegemony is fading. The pound may benefit from a flight to relative safety, but don’t count on it. Inflationary pressures from trade disruption could force the Bank of England to raise rates faster than expected, hurting gilts.
In summary, Trump’s China visit was a masterclass in realpolitik, but for the markets, it was a wake-up call. The bottom line: be prepared for volatility, and keep an eye on Beijing.
