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Investors Shouldn't Expect Final End to Trade War Despite Optimism

Investors Shouldn't Expect Final End to Trade War Despite Optimism
(Tzogia Kappatou/Dreamstime)

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Monday, 01 July 2019 12:37 PM Current | Bio | Archive

President Donald Trump and Chinese President Xi Jinping on Saturday on the sidelines of the G-20 summit in Osaka, Japan, agreed their two countries, which are in the midst of a bitter trade war, will return to talks and confirmed that some kind of a cease-fire had been reached.

Investors should realize that Trump and Xi made no progress towards reducing tariffs and didn’t release a joint statement after their meeting that took 80 minutes.

After the meeting with Xi, Trump told reporters “We’re right back on track” while the Chinese foreign ministry quoted Xi as saying “China is sincere about continuing negotiations with the United States ... but negotiations should be equal and show mutual respect”.

About Huawei Technologies Co. Ltd., which is the world’s biggest telecom network gear maker and that on May 16, the Bureau of Industry and Security had put on its “Entity List” which bans effectively Huawei from buying parts and components from U.S. companies without U.S. government approval, Trump said on Saturday that the Commerce Department would study over the next few days whether to take Huawei off that list.

Huawei had come under mounting scrutiny since more than a year because of U.S. allegations that “back doors” in its routers, switches and other gear could allow China to spy on U.S. communications. Huawei has denied that its products pose a security threat while also on Saturday it declined to comment on the developments.

Trump also said on Saturday “We’re holding back on tariffs, at least for the time being, and they’re going to buy farm products” while he didn’t give details about the purchases. He also did not impose a deadline on the duration of the “truce,” Reuters reported.

On Sunday, White House top economic adviser Larry Kudlow told “Face the Nation” that Trump and his administration officials are as cautious and concerned about the potential national security threats Huawei poses to the U.S. “The president is not backing off on the national security concerns. We understand the huge risks regarding Huawei.”

“What's happening now is simply a loosening up for general merchandise, maybe some additional licenses from the Department of Commerce. It is not the last word. The last word is not going to come until the very end of the talks. This is a complicate matter,” Kudlow said, CBS News reported.

So what could this all mean for the investor?

On Saturday, Xi described the situation very well when he said at the start of his meeting with Trump on the sidelines of the G2-0 meeting that a basic fact remains unchanged despite changes in the international situation that China and the United States both benefit from cooperation and lose from confrontation, Xinhua reported.

Investors shouldn’t expect a “real” inclusive trade deal any time soon between the U.S. and China. Let’s not forget that the U.S. continues to press China for stepping up intellectual property protection, “eliminate” completely forced technology transfers, and secure greater access to China's markets.

From its side, China aims, among other things, to eliminate the recent tariffs hikes.

As any investor knows, the U.S. – China talks are characterized for their sudden shifts in their respective trade negotiations positions and there is no indication whatsoever that this will end anytime soon.

For any investor, the best advice is for trying to remain as realistic as possible and not to go into competition with time.

There is no doubt that there are still a lot of unknown unknowns waiting for us all on the path forward.

So far, optimism is the name of the game today and it’s all risk on all over the globe with a lot of “green” everywhere, with the exception for gold.

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

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Investors Shouldn’t Expect Final End to Trade War Despite Optimism
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2019-37-01
Monday, 01 July 2019 12:37 PM
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