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sea. Jul 25, 2018 – 5:50 AM
Trade tensions between the United States and China have evolved since our last letter on this topic a few months ago. There was a false sense of relief after Treasury Secretary Steven Mnuchin declared that the trade war was suspended.
Many believed that President Donald Trump would be convinced by additional purchases of oil, agricultural products and other goods. US trade deficit with China at the global level
However, in recent weeks, the Trump administration has made progress in the application of commercial tariffs on the first US $ 50 billion of 39, imports from China. It is important to note that on July 6, the first US $ 34 billion tariffs come into effect and, in August, another $ 16 billion. What then upset the markets is the announcement by President Trump of $ 200 billion of additional tariffs on imports and he threatens to double tariffs if China issues countervailing duties. -measures. In addition, trade between Europe and the United States eclipses that of the United States and China, and the subject of car rates was also mentioned.
What is interesting is the negotiating position of President Trump. Until now, the scenario illustrates his sense of the art of the deal
- The US economy outperforms because of the tax cuts that have been President Trump's greatest accomplishment. Last year and judiciously anticipated on trade negotiations. The economy is also experiencing a decline in unemployment and continues to face moderate inflation.
- Moreover, the global stock market has so far made a clear verdict as to which country is most affected by trade tensions. The US stock market has hardly been affected as Chinese stock markets are down and Europe underperforms.
- At the same time, the Chinese economy is experiencing a targeted slowdown with a decline in the parallel banking system and crucial reforms. component of the five-year plan of Chinese President Xi Jinping
- After the summit between North Korea and the United States, China has not received any favorable trade deal. In fact, the rhetoric of the United States has intensified.
- Finally, it is one of the few areas where Democrats and Republicans are unified, again underestimated by consensus. It does not seem that China or the rest of the world was waiting for this scenario. In recent weeks, we have seen China react with a reduction in reserve requirements and some weakness in the renminbi as safety valves to support the slowdown in the economy and to hedge some downside risks.
But is it just a question of deficit? This also raised the question of how far national security and Made in China 2025 also have an impact on the negotiations.
The White House has seen a noticeable increase in national security and commercial hawks, with Robert Lighthizer, Peter Navarro and Mike Pompeo gaining prominence. It also underlies concerns about the protection of intellectual property and forced technology transfer that have existed for years when the West deals with China.
These fears persist and worsen as Western governments become vigilant and concerned. However, this is currently reflected by a number of countries in Europe and Australia establishing new rules for the review of foreign investment from China and other countries.
At the latest news, the United States will continue to use the existing CFIUS in the United States) to examine foreign investment for national security reasons rather than extend it to direct and targeted rules against countries like China.
It was a small plus, but until recently, the committee rarely ruled out the takeovers, which is changing. What is clear is that we need progress here, but in the absence of this, it could restrict foreign investment.
This is not encouraging in the long run, but it is frankly the result of the current environment. Do not expect quick wins – clearly large deals in sensitive sectors in Europe or the United States seem unlikely in the short term.
What are the next steps in trade negotiations?
While many rates have been announced, implementation delays ads by several months, leaving time for discussions. The impact of a total trade war would be costly for both parties, although this is probably less than expected by the market. The impact on GDP in the United States and China could be less than 1%.
However, it is important to keep in mind, as discussed, trade statistics are a terrible indicator of trade competitiveness. For example, all goods produced and sold in China are not included in trade statistics. This means that Apple (and many other US multinationals) that sell $ 48 billion in China and 310 million phones in 2016, do not appear at all in trade statistics.
Surprisingly, if we add sales of these US subsidiaries in China (which has also grown at an annualized rate of 18 percent) and has been the fastest growing sector of trade between the two countries), the trade deficit of 375 billion US dollars would be surprisingly transformed into a "trade surplus" with China (NOT a deficit). In fact, the United States overall shows a trade surplus on the same scale
This means that for the US stock market, which up to now was detached from trade tensions, the actions of US multinationals could eventually see a liquidation anticipated. the important mid-term elections in the United States if there is no resolution.
At the same time, China would like to contain the damage to its own economy and gradually open up. Therefore, there is always the possibility of an agreement, but the risks have increased.
However, its calendar was probably postponed during the summer and could still take place in the fall.
The crucial uncertainty is how long trade tensions will last. If it extends beyond the beginning of autumn, this could have an impact on global trust, investment and growth.
Otherwise, this cautiously adds a selective exposure to China, Europe and some US stocks. . The likelihood of a global recession remains low for the next 12 months and the biggest surprise could be the length of the US cycle.
- The author is Chief Investment Officer, Asia BNP Paribas Wealth Management [19659028] <! –
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