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Macroscope | Calm before the storm? Ongoing US-China trade tensions leave markets and investors on edge
Hannah Anderson says hopes that Washington and Beijing can resolve their trade dispute are on hold as June negotiations have shown little progress, and the possibility of punitive tariffs remains a reality
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This week in trade has felt a bit like the calm in between summer typhoons here in Hong Kong; nice to have a break from the rain, but we know the next storm is just around the corner. The week has contained a merciful lack of trade headlines, but sandwiched between the unsatisfying conclusion of last week’s round of trade talks in Beijing and next week’s release of the final product list of US$50 billion of Chinese imports on which the US will apply a 25 per cent tariff, this is likely to be an anomaly compared to the rest of the summer.
Lacking new information, investors’ anxiety has continued as they wonder what’s next. In the short term, trade tensions are unlikely to produce anything besides volatility. Investors have become used to such trade-induced moves, to an extent, but they need to be cautious about making decisions amid this volatility and ensure they are reacting to actions, not talk.
Despite headlines to the contrary, there has been very little action on US-China trade. The US administration’s focus on the trade deficit means its proposals consist of higher tariffs on imports from China. The US hopes resulting higher prices will change consumer behaviour, by encouraging them to substitute US goods for Chinese ones, thus narrowing the large goods trade deficit.
Markets received an unwelcome reminder of these plans at the end of May, when the US announced that its tariffs on Chinese imports would go into effect as initially planned, dashing hopes that ongoing talks would prevent any action ahead of a larger deal. Earlier comments from the US that the trade war was “on hold” comforted markets, although the dispute never really paused. After the second round of talks in mid-May, both sides released a moderate-sounding joint statement highlighting the need for ongoing discussions.
Watch: China and US put trade war on hold
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