Tags: huawei | china | trade | talks

Huawei Charges Could Derail China-US Trade Talks

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Tuesday, 29 January 2019 09:00 AM Current | Bio | Archive

Preliminary trade talks continue ahead of the proper trade talks between China’s Vice Premier Liu He and U.S. trade representative Robert Lighthizer together with White House trade adviser Peter Navarro and Treasury Secretary Mnuchin tomorrow in Washington DC.

There are lots of high level statements coming out of the U.S. about the need for ‘verification’ by China and so forth, but, at least in my view, ultimately a lessening of the trade tensions will be down to President Trump.

The question is whether President Trump pushes to continue ‘taxing’ equities, which is effectively what the tariffs amount to, and accepts the consequences of that, or whether the President would prefer to reduce tensions and ‘support’ financial markets.

By the way, President Trump is scheduled to meet Mr. Liu He at the end of the talks.

The Wall Street Journal referring to anonymous sources says that a big divide remains between the U.S. and China. The WSJ quotes that China will fight U.S. demands for deep structural changes while China plans to offer to buy big increase in U.S. farm and energy purchases, but only offer modest industrial policy reforms.

For investors it might be helpful to recall that U.S. officials said that President Trump is prepared to raise tariffs and will rely for advice on Mr. Lighthizer, who believes such measures are necessary to get China to ‘change’. In case that would happen, investors should be prepared for a real negative effect on the financial markets.

Mr. Lighthizer has argued in favor of keeping the 10 percent tariffs in place at least until China has proved that it has lived up to its promises even if the two sides reach a trade deal.

Among investors there has now come also a serious degree of uncertainty after yesterday U.S. federal prosecutors have formally accused Huawei of violating U.S. sanctions on Iran and of stealing trade secrets from a U.S. business partner, which is in clear language means ‘theft of technology’, as well as bank fraud and obstruction of justice.

The actions included charges against Huawei’s chief financial officer, Meng Wanzhou, who is being held in Vancouver, Canada after she was arrested by the Canadian authorities because of a U.S. extradition request.

The big question remains if the whole Huawei case will have a direct impact on the U.S. – China trade talks, the Journal reports.

Anyway, Reuters reported that yesterday that China’s Foreign Ministry has urged the United States to stop ‘unreasonable suppression’ of Chinese companies, including Huawei, and to lift an arrest warrant against Meng. Beijing would resolutely protect the lawful interests of Chinese companies, the ministry said in a statement.

Investors will have to be somewhat ‘patient’ to get more clarity on the whole story.

Brexit Saga Continues

Today, in the UK, we get a series of votes in the UK Parliament on the interminably tedious process of exiting the European Union (EU). Prime Minister May has indicated a willingness to back an amendment to the government’s own legislation, although even with that, the amendment is expected to fail, the BBC reported.

Welcome to the wacky world of Westminster!

There is also set another vote on the Prime Minister’s Brexit deal on February 13th, which can also be amended. This makes a ‘No-deal’ exit relatively less probable.

As a result, financial markets may take this positively.

In the meantime, the British pound continues its upward trend.

ECB President Draghi Says ECB Could Resume Bond Purchases

Speaking yesterday before the European Parliament’s committee on economic affairs, ECB President Draghi said when asked about restarting bond purchases by the Central Bank: “If things go very wrong, we can still resume other instruments in our toolbox. At this point in time, we don’t see such a contingency as likely to materialize, certainly not this year.”

In December, after nearly four years, the ECB ended its 2.6 trillion euro or nearly 3 trillion dollar bond purchase program that is known as the ECB’s quantitative easing (QE) program, Reuters reported.

All this confirms the weak state of the Euro are economy and that a stronger euro is not on the cards for the moment.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The big question remains if the whole Huawei case will have a direct impact on the U.S. – China trade talks.
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Tuesday, 29 January 2019 09:00 AM
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