US-China: negotiations continue while a trade war is taking place

Tuesday 21 May 2019

Market News

Economy and markets 

No respite in the war of duties. After the announcement by the US of the increase in duties from 10% to 25% on Chinese products worth 200 billion dollars, China has announced counter measures on 60 billion dollars of US exports from 1st June.

However, it looks like both sides have not given up entirely as negotiations continue.

Trump and XI have to make final decisions. In particular, Chinese Deputy Premier Liu did not reach agreements with the United States in relation to remove all tariff increases imposed since last year, set targets for Chinese goods purchases in line with real demand, and to ensure that the text of the agreement is "balanced" to ensure "equality", "dignity" and not to weaken Chinese "sovereignty".

Higher tariffs will hurt everyone, Chinese exporters as well as US consumers. With a possible delay of one or two months, inflation in the United States will be affected by the fact that more consumer goods will be hit by duties and that it will take time for US companies to change their supply chain.

We suggest maintaining a prudent attitude. In particular, we believe that a potential escalation of trade tensions (applications of US duties on all remaining Chinese imports, announcement of further retaliation by China and even complete interruption of negotiations) is not yet completely discounted in the markets and, consequently, it would have an impact on short-term sentiment and trigger an important sell-off in risky assets.

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