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Sino-American Trade War - Round 2

Author: Ian Davis - Bullion Manager

Published: 16 Feb 2019

Last Updated: 16 Oct 2019

Round 2 of the Sino–American trade talks begin, and markets respond positively to what has been a long drawn out process.

The ongoing dispute has undoubtedly hampered global trade, as well as delivering a more severe local blow across Eastern Asia. Many companies operating in the supply chain of  Chinese manufacturing have taken the brunt as the trade conflict took hold and slowed output.

As preamble to the main fight on this summit's ticket, which is a meeting of Xi and Trump, representatives of both governments convened to plot an amicable course for higher level talks.

The ceasefire agreed last year at the G20 summit in Argentina is about to end and the job first falls to Steven Munchin (US Treasury Secretary), Robert Lighthizer (US Trade Representative) and Chinese vice-premier Liu He to negotiate and ultimately compromise to avoid what is likely to become a conflict beyond that merely of trade. Chinese stocks (the CSI) climbed 1.8% but the US and EU fell short of matching the gains.

Trump's next wave of tariffs composing of some $200bn is due to take affect come March 1st and in classic style he has ruled out a meeting with Xi before this date. Playing power politics with so much at stake defies logic to me but I am not Trump, nor anything close to resembling him, and without a meeting in the diary trader sentiment falls short of potential hampering markets further.

Towards the back of February Trump announces a let up in trade war rhetoric by granting an extension to the deadline to impose a further tariffs. Chinese stocks surged at the news and the prospect of a deal with the CSI 300 rising some 6% continuing the upward trend from June putting the market into an official bull run. The rest of Asia tapped into the optimism with positive gains in the markets albeit less than the CSI index.

With negotiations now set to continue beyond the March 1st deadline we can expect more volatility and whether the US and China will even resolve their differences remains to be seen. The two are at polar opposites on aspects of trade and intellectual property, negotiations are difficult with mixed signals from the Trump administration. It appears the US wants to contain China, manage and restrict their economy or risk losing their dominant economic position. Surely any measures the US take to dampen Chinese growth will not be met with a handshake, but instead more hostility, and how east and west agree a path forward that avoids further conflict is important not only to the two countries but the entire world.  

You may wish to read more articles in our market news section. 

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