Market Overview

18 November 2019

No US-China phase one trade deal likely this year?

Recent developments in US-China Trade talks are seen rather disappointing than optimistic. Despite the calming signals from US officials of a first phase broad trade agreement is entering final stages there is a significant risk the talks could take longer than expected mid-December deadline.

Such risks could evolve amid mounting US military and diplomatic pressure on China. The major sticking point could come from Hong Kong riots where fears of a bloody shutdown are rising. United States, Britain and EU called escalating violence unacceptable and urged Beijing to honor its commitments under the Sino-British joint Declaration. No signs China will accept such calls and cease police operations are in sight. More likely China will restore order in the Region in a usual manner to demonstrate the authority.

The other area of tension – South China Sea where China has established several military outposts to control all energy-reach waters of the sea. US claims the territory should be available for other neighbors and regularly vexes water area of some of the islands China took military control of. Chinese Defense Minister Wei Fenghe called on the US military to “stop flexing muscles in the South China Sea and to not provoke and escalate tensions”.

Whatever the reason could be China in the longer run will benefit from any delay in the trade talks as they did six month ago. China will hardly make any serious concessions that could undermine their way to become No.1 economy in the world. Chinese economy still has a robust growth. Even slowdown to less than 6% in GDP annually will not halt the second largest economy to trade places with US in next decade. China has a wisdom to wait and the break in talks could give them and advantage. So, if a temporary break down in talks is needed China could afford it. But, the US could not. President Donald Trump has a limited time before the elections to make a final effort and persuade China to accept the deal. Being a businessperson to his fingertips and sanguine of success, he will likely to rise stakes in the deal and steamroll over competitors.

Meanwhile CNBC reports that mood in Beijing about trade deal is pessimistic, according to government source. China troubled after Trump said no tariff rollback while China thought both had agreed in principle. Strategy now to talk but wait due to impeachment, US elections.

Further pressure and new trade tariffs would harm the global trade in a very dramatic way.

World Trade Organization on Monday has acknowledged that goods trade has stalled in the recent months. World merchandise trade slowed down to 0.2% in the second quarter of 2019 compared with 3.5% in the same quarter of 2018. The WTO trade barometer indicators suggest trade will be weak for the rest of 2019 and remain below trend. That mean we could see a steady decline in trade volume in the second half of 2019.

If the risks will snap into action the global markets will be affected and we could see a sharp correction in market performance, especially in US.

 

 Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Indiscriminate reliance on illustrative or informational materials may lead to losses.

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