USA-China Trade Deal Prospect Boosts Capital Markets

Remarks made by U.S. president Donald Trump yesterday that a trade agreement between the USA and China was “very, very close” has boosted those investing online around the world by spurring equities markets into gains. The ‘tit for tat’ rounds of reciprocal new tariffs being slapped on mutual imports have hit the global economy over the past several months and have been blamed for directly accelerating China’s economic growth slowdown. In Beijing, stock markets gained as much as 5% this morning on hopes that a resolution may be in sight.

During Monday trading on Wall Street, Trump’s update saw the Dow Jones Industrial Average hit its highest point of 2019 before the 0.2% gain was pared later in the session. Elsewhere in Asia this morning gains were apparent but modest.

The Trump administration had been threatening to raise import tariffs from 10% to 25% on a further $200 billion of Chinese goods into the USA. The “substantial progress” now being made in trade talks means the decision has been taken to delay the move. The hope is now that an agreement can be reached to mean the hike never happens. $250 billion of Chinese goods have already seen tariffs raised with $110 billion of U.S. imports into China reciprocally subjected to higher taxes.

The past three months have seen a pause to new rounds of tariffs to give a window for trade talks to take place. Trump insists that historical trade conditions between the two countries have been unfairly weighted in China’s favour to the disadvantage of local industry and the U.S. balance of trade.

Trump’s more abrasive, confrontational approach to international relations flies in the face of the usual soft-touch diplomacy employed by his predecessors. But if he manages to now pull off an agreement that both neutralises the trade tensions of the past several months while leaving the U.S. in a stronger position he will be able to claim a significant success.

His one-man good cop/bad cop negotiating style was yesterday encapsulated by a few sentences that raised optimism a deal could be reached without taking the possibility of a break-down off the table if there is any last-minute manoeuvring not to his taste:

“It might not happen at all, OK? Might not happen at all, but I think it’s going to happen and it could happen fairly soon. The relationship is great.”