iFund- Easing trade tensions between Washington and Beijing?

2019-09-18 04:13
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Hostile behaviours and policies, either from China or the United States, will be a lose-lose situation. Trump’s net approval rating is negative, bringing a great pressure on his presidential campaign. On the other hand, the Chinese government also hopes to properly handle the economic downturn. Therefore, both sides have incentives to reach a deal.

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Since the G20 summit in late June, the Sino-US trade war reached a stalemate. The main events include:
• The negotiations between the two sides in July were unremarkable;
• US President Trump suddenly announced that he would impose a 10% tariff on the remaining $300 billion of Chinese imports to the United States;
• Both USD/CNY and USD/CNH fell below 7, and the USD/CNH hit a record low;
• The US Treasury Department designated China as a currency manipulator;
• China imposed additional tariffs on $75 billion of American goods;
• The US announced that it would impose an extra 5% tariff on China’s 300 billion Chinese goods to 15% starting from September 1. The tariff of Chinese goods worth 250 billion would be increased from 25% to 30% starting from October 1;
• The People’s Bank of China cut the required reserve ratio by 0.5%.

However, after the two sides agreed to hold the 13th round of China-US high-level trade consultations in early Oct in Washington, both China and USA have recently shown sincerity. China granted tariff exemptions to 16 types of US goods, while the US President Donald Trump said the tariff hikes — from 25% to 30% — will be moved from October 1 to October 15. Last night, Trump says he would consider an interim trade deal with China.

Under globalization, countries’ interests are overlapped. Hostile behaviours and policies, either from China or the United States, will be a lose-lose situation. Trump’s net approval rating is negative, bringing a great pressure on his presidential campaign. On the other hand, the Chinese government also hopes to properly handle the economic downturn. Therefore, both sides have incentives to reach a deal. However, if the US insists Chinese needs to conduct structural reforms and incorporates an enforcement mechanism into the agreement, China may refuse. As a result, the chances of reaching an agreement in the short term may not be too high.

Investors may consider adding gold to their portfolios to diversify risk. In the recent wave(last 3 months) of stock sell-offs, gold outperformed stocks, other precious metals, oil, and also some traditional defensive assets, such as long-term bonds.

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