When Donald Trump talked at length about imposing tariffs of between 35% and 45% on Chinese imports in the build-up to the 2016 election, many considered this to be yet another outlandish claim that would never materialise.
Now, while Trump’s recent attempts to initiate a trade war with China may have included less seismic tariffs, the POTUS has remained true to his promise by mounting an attack on China’s protectionist economic policies and the huge trade difference that currently exists between these two nations.
With China having responded in kind and both parties currently locked in detailed negotiations, we take a look at the impact of these talks on the global economy and the world’s financial markets.
Why Smoke and Mirrors Continue to Surround These Talks
According to the most recent developments, both China and the U.S. are offering different accounts of the latest discussions to have taken place between representatives.
While U.S. officials claimed last week that Beijing had proposed boosting Chinese purchases of American goods by around $200 billion in an attempt to reduce the existing trade imbalance, Foreign Ministry spokesman Lu Kang strongly refuted this assertion the following day.
In fact, he reasserted that China had made no such offer to their American counterparts while insisting that talks were continuing to end the current stalemate.
How is this Conflict Impacting on the Financial Markets?
This perpetuated the widely-held belief that the current conflict represents something of a phony war, as both sides assume extreme positions in a bid to secure a mutually-beneficial agreement.
This is reflected by the performance of the financial markets, which have showcased a robust and deterministic response to the uncertainty surrounding these trade talks and failed to yield to negative speculation. In fact, a number of U.S. stocks have reported gains as a result of Trump’s seemingly aggressive stance on trade, which is part of a rigid protectionist approach that has caused the US Dollar (USD) to weaken in recent times.
According to Richard Perry of Hantec Markets, the recent market sentiment has remained cautiously optimistic, with a period of consolidation ensuing as the talks between American and Chinese officials continue.
The mood could change if the recent disagreement triggers more combative talks, of course, but for now, there appears to be a degree of accord between the two sides that is increasing the level of optimism surrounding a positive and constructive outcome.
The Last Word – How will the Trade War Play Out?
The sense that this is a phony war is hard to escape, and there’s no doubt that investors remain decidedly skeptical that an actual trade will break out between the U.S. and China.
After all, it seems unlikely that even the current White House administration would be prepared to do battle with such a huge economy, especially with prominent brands such as Apple so reliant on Chinese consumers and manufacturing plants. In fact, Chinese purchased a staggering 131 million iPhones as recently as 2015, while total smartphone sales to U.S. consumers during the same period stood at only 110 million.
With other key industries and markets showcasing a similar trend, the chances are at these sides will arrive at an agreeable compromise in a relatively short period of time. If not, the ensuing trade war is unlikely to leave many winners, with the global economy and financial markets bearing the brunt of the fall-out.