Market buoyed by expectations for win-win trade deal between Beijing and Washington
The growing optimism that the US and China will soon hammer out a win-win trade deal following tangible progress made at their latest round of talks in Beijing is buoying the market. Both Wall Street and China’s two stock bourses in Shanghai and Shenzhen have brightened with strong gains during recent trading sessions.
As China’s negotiation team, headed by Vice Premier Liu He, embarked on a fresh round of trade discussions with US counterparts in Washington DC on Thursday, the focus of global investors will shift to the White House, again. Any news coming out of it will have enormous ramifications for the market.
It remains unclear whether the world’s two largest economies will officially clinch a deal before March 1, or if that deadline will be extended by 60 days to May 1 so the two countries can have more time to talk and settle on a more comprehensive trade deal. The odds are 50-50, analysts say.
At a White House press conference last week, US President Donald Trump briefed reporters that he may decide to extend the March 1 deadline and prevent the current 10 percent tariff rates on $200 billion of Chinese goods from rising. That statement by Trump has been noticed and widely read as a favorable plus to the high-stakes trade consultations.
Ever since the two economic powerhouses became embroiled in an escalating trade war in the middle of 2018, global markets have seen a tumultuous run.
The unpredictability of the trade conflict trends has, intermittently, intensified investor risk-aversion, worsened equity volatility, and increasingly darkened the world economic outlook.
In the meantime, the two largest economies themselves are facing a pinch, and that will inevitably lead the global economy on a downhill path.
Major organizations, including the IMF and World Bank, have portended that if the trade war continues, China’s GDP growth is likely to slow to 6.3 percent in 2019 from 6.6 percent in 2018, and the GDP growth of the US will lose impetus and fall to 2.4 percent this year.
A sudden dip in US economic performance in 2019, if coupled with rising inflation and static wages, could be the last thing Trump wants to see, since a faltering economy is nightmarish for a sitting president seeking reelection. Trump is almost certain to jostle for the 2020 presidential ballot, according to US media reports.
Based on this account, Trump is not expected to inflame and fire up the trade war by further raising tariffs and causing more tit-for-tat retaliations from China – a dreadful scenario that would bring global economic growth to an actual standstill.
The Trump administration will do its best to avert the disrupted supply chains faced by US manufacturers, much lowered purchasing power for the American middle class, and a swooning stock market resulting from the tariff war.
And if Trump decides to hike tariffs on $200 billion in Chinese imports on March 2, China’s stop-gap move – agreed upon at the G20 summit meeting in Buenos Aires in December – to reduce tariffs on US-produced cars and SUVs, and China’s subsequent purchases of US soybeans, oil and liquefied natural gas, will come to an end. The situation favoring the US will also keep the Trump administration from raising tariffs.
However, there exists the possibility that the White House could prolong the negotiations by 60 days to May 1 so that US officials can have more time to extract more concessions from China. Trump has long touted himself as a cunning negotiator, and he is likely to create more narratives, or aggravate the complexity of issues, so that the talks drag on.
The unpredictability of the trade conflict trends has, intermittently, intensified investor risk-aversion, worsened equity volatility, and increasingly darkened the world economic outlook.