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Investors, Don't Get Too Hopeful on China Trade Talks

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Tuesday, 19 February 2019 11:39 AM Current | Bio | Archive

A new round of trade talks between the U.S. and China starts today in Washington, with follow-up higher level sessions scheduled to start on Thursday that will be led by U.S. Trade Representative Robert Lighthizer, who is a strong proponent of pressing China to end its practices of forced technology transfers from U.S. companies and intellectual property theft.

China denies that it engages in such practices while it has confirmed that Vice Premier Liu He will participate in the talks on Thursday and Friday in Washington. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, economic adviser Larry Kudlow and trade adviser Peter Navarro would also take part in the talks.

Anyway, China has accused yesterday the United Sates of blocking its industrial development by claiming Chinese mobile gear could pose a cyber-security threat to countries rolling 5G, CNBC reported.

Financial markets have taken on a risk-off stance again on the news with share equities lower and dollar index up above the 97 mark line.

We’ll see what comes out of the talks in Washington this week. I think that investors shouldn’t get too over optimistic about the outcome of the talks.

U.S. tariffs on $200 billion in imports from China were set to rise to 25 percent from 10 percent if no deal was reached by March 1.

President Donald Trump suggested last week that he could extend the deadline of March 1 for the talks.

In the meantime, the U.S. Commerce Department sent a “Section 232” national security report on Sunday to Trump that could unleash steep tariffs of up to 25 percent on imported cars and auto parts. Without knowing the exact content, the report has already provoked a sharp backlash from the auto industry.

The Motor and Equipment Manufacturers Association (MEMA) called yesterday for the immediate release of the section 232 tariff report.

Trump has 90 days to decide whether to act upon the recommendations of the report.

Jean-Claude Juncker, President of the European Commission stated yesterday he believed that Trump would keep “his word” not to impose any tariffs on European cars and car parts for the time being, adding in case Trump should renege on his commitment, the EU will no longer feel bound by its commitments to buy more U.S. soya and liquid gas, Politico reported.

No, the last word on this subject hasn’t been said yet.

Meanwhile in the UK, in the interminable tedious process of getting the UK out of the European Union, negotiators are apparently working to try and find a solution to the Irish backstop problem.

The Guardian reports that Ireland's deputy Prime Minister, Simon Coveney, has warned British negotiators that their demands in the next round of Brexit talks must be reasonable. He rejected proposed alternatives to the backstop as “wishful thinking” and insisted that there would be no last-minute concession from the EU to fundamentally alter it.

Financial markets are unlikely to put much faith in finding a British negotiators’ brokered solution in the near term.

Meanwhile, the British pound remains around $1.29 per Sterling. Investors should be aware that in case a no-deal Brexit should occur, a collapse of the British pound to the $1.20 zone cannot be excluded.

Yesterday’s split in Parliament in the opposition Labor Party may raise the prospect of an early general election. The governing Conservatives might want to challenge a divided opposition. That’s not a high probability at the moment, but markets may have to consider it if the Labor Party’s split worsens.

Meanwhile, the UK consumers continue to ignore the whole process and the labor market is a clue to why they are so willing to ignore the whole process as strength continues. This was underlined again in today’s employment report. The unemployment rate came in at 4 percent in the fourth quarter of 2018, in line with market expectations and its lowest level since the 1970s.

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

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We’ll see what comes out of the talks in Washington this week. I think that investors shouldn’t get too over optimistic about the outcome of the talks.
investors, china, trade, talks
Tuesday, 19 February 2019 11:39 AM
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