Progress in U.S.-China Trade Negotiations Slows Markets

Author: Nikki-Lee Birdsey

Estimated read time: 3 minutes

Publication date: 2nd Aug 2019 22:30 GMT+1

All eyes are on China and the U.S. this week as the two countries continue their trade negotiations in an attempt to end the U.S.-China trade dispute. Also this week, President Donald Trump has made public comments urging China to make a deal amid the back of a recent market tumble on Wednesday, due to an unexpectedly low cut in interest rates from the U.S. Federal Reserve. China remains hesitant, and perhaps are using a new tactic to wait out Trump, as the Wall Street Journal Reports.

The U.S.-China Trade War So Far

At the end of June there appeared to be a successful G-20 Conference summit in Japan, along with renewed trade negotiations between President Trump and Chinese president Xi Jinping that pointed to an easing of tensions between the two nations. This optimism for an end to the trade war resulted in markets posting their best half-year performances in over 20 years. The S&P 500 Index closed at the end of June on a record high of 2964 at this news. In London, the FTSE 100 closed 76 points higher at 7,502.

But by mid-July, China and the U.S. appeared to be in another stalemate. According to a New York Times article, Chinese money is drying up in the United States, with China divesting 90% of its funds since Donald Trump took office. China has halted investment in U.S. tech start-ups, state government projects, and the Manhattan real estate market.

The U.S.-China trade dispute has caused volatility in global markets, as international imports and exports have continued to decrease. So far, President Trump has imposed import tariffs on $200 billion worth of chinese goods, and China has retaliated with higher taxes on $60 billion of U.S. imports.

New This Week

This week trade negotiations are in motion again, but with a much more subdued market reception—and far from the ebullient response of investors a month ago. The U.S. team, headed by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, met for dinner on Tuesday in Shanghai with the Chinese delegation led by Chinese Vice Premier Liu He. There was a formal meeting the following day on Wednesday.

Both sides want each other to demonstrate commitment to the unique U.S.-China trade relationship. China wants the U.S. to end restrictions on their major telecommunications manufacturer Huawei’s access to U.S. technology. While the U.S. wants China to increase its orders for American farm sector goods.

Bottom Line

On Tuesday, in a series of tweets, President Trump put pressure on China to make a deal, as the Wall Street Journal Reports. In comments made to reporters at the White House, he said, “We’re either going to make a great deal or we’re not going to make a deal at all.” But China has not budged in agreeing to the various terms in place so far. Progress, if there has been any at all, has been slow and may continue to be so.

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.