Breakthrough or rupture: the G20 sets a turning point in the trade war

PARIS (Reuters) – Next week, the United States and China may have their last chance to reach a ceasefire in an increasingly dangerous trade war when their presidents meet in Buenos Aires.

As global growth suffers more and more friction between the two largest economies, tensions will dissipate when Donald Trump and Xi Jingping meet on the sidelines of the G20 summit in Argentina.

Washington is expected to raise tariffs on Chinese imports by $ 200 billion, from 10% in January to 25% in the absence of agreement.

"We are optimistic that the summit is an opportunity to avoid further escalation, but not to return to previously announced rates," UBS economists wrote in a research note.

They said that there was only a short time before the end of the year to develop a different customs tariff.

Washington accuses Beijing of not playing fair trade while China says the US is protectionist.

"If no agreement is reached, investors should realize that tariffs are no longer an asset to bring China to the negotiating table," said Kevin Lai, an analyst at Daiwa Capital Markets, in a note. of research.

"Tariffs are now part of a longer-term strategy to disconnect China from globalization, to restrain its economic power (and thus its flexible and absolute power) and to give the United States an edge strategy, "he added.

The OECD warned this week that a major trade war between China and the United States could bring global growth down by 0.8% by 2021, and even more so for both countries.

"Trade is the biggest threat to our economic prospects and the lack of dialogue is of great concern to us," said the chief economist of the OECD, Laurence Boone, when presenting his growth forecast world downgraded Wednesday.

BREXIT WORRIES

Although the fallout from China-United States. The impasse also affects other regions. In Europe, the Brexit will also occupy the spirit, because the British Prime Minister Theresa May is struggling to win the support of the British treaty of withdrawal from the EU.

Ensuring the support of the 27 other European Union governments in Brussels on Sunday is only a first hurdle, as a bigger hurdle looms in early December when the month of May will seek the support of the UK parliament.

"This conclusion – according to the basic principle, that the (House of Commons) will vote against the agreement – is becoming a consensus in London," writes TS Lombard analyst, Constantine Fraser, in a research note.

Due to geopolitical factors such as trade frictions and Brexit, central bankers' speeches next week will be scrutinized for any attempt to rethink their monetary policy trajectory.

Fed Chairman Jerome Powell is scheduled to speak in New York on Wednesday and European Central Bank President Mario Draghi will speak in Frankfurt on Thursday.

With little data fluctuating in the market during the week, news headlines are more likely to boost investor risk appetite, already on the defensive after recent market volatility bouts.