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Don't Expect 'Complete' Trade Deal With China Soon

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Wednesday, 23 January 2019 11:12 AM Current | Bio | Archive

US-China Trade Tensions Linger

U.S. equity markets experienced a “sudden” weakness (the second worst day this year) after the Financial Times had published an article wherein it said that the Trump administration had turned down an offer by two Chinese vice-ministers, Wang Shouwen and Liao Min, to hold preparatory U.S.- China trade talks because the two sides hadn't progressed on a couple of important issues.

This week’s trip was intended to prepare for a higher-level meeting in Washington that is scheduled on January 30-31 by China Vice-Premier Liu He and U.S. Trade Representative Robert Lighthizer.

In an interview with CNBC yesterday, Larry Kudlow the President’s Director of the National Economic Council said there was never a planned meeting besides the higher-level scheduled meeting between China Vice-Premier Liu He and U.S. Trade Representative Robert Lighthizer, together with their people, in Washington on January 30-31.

In the CNBC interview Mr. Kudlow stated: “We are moving towards negotiations … We have got unfair trading practices. We have got IP theft issues. We have got structural technology issues. Ownership issues as well as tariff and nontariff barrier type issues … Vice Premier Liu He is coming here with his top deputies and we will engage … the scope of the things is deeper and broader than anything we have had before.“

For investors, all of this is important. 

The fact is that expecting a quick and complete trade deal with China is delusional. Resolving the trade balance with China is possible but will be difficult. There are also geopolitical questions which will take, without any form of exaggeration, many, many years to settle.

Partial Government Shutdown

Besides that, the Senate will vote tomorrow on Republican ad Democrat proposals aimed at ending the partial government shutdown. Neither the Republican nor the Democrat proposal looks like having a chance to succeed. The Republican proposal includes funding for President Trump’s border wall which the Democrats in the House probably will block. The Democrat proposal would need to win the backing of 13 Republican Senators.

Besides all that and that makes the path to a compromise more difficult is the lack of clarity over what the President may be willing to sign.

The U.S. partial government shutdown is at day 33.

According to an estimate by S&P Global Ratings the total economic cost of the ongoing partial U.S. government shutdown would exceed the amount of border wall funding that President Donald Trump is seeking if the impasse in Washington lasts until the end of this month.

The U.S. economy loses approximately $1.2 billion every week since the shutdown began Dec. 22, 2018.

"The longer this shutdown drags on, the more collateral damage the economy will suffer," S&P said.

The Price of Oil and Russia

Speaking at the World Economic Forum in Davos, Switzerland, Kirill Dmitriyev, who by the way was the first Russian official to mention publicly the possibility of a supply pact with OPEC now 3 years ago said: “We should not take competitive action to destroy U.S. shale production.”

U.S. production is expected to reach new highs this year while Russian President Putin will visit Saudi Arabia later in 2019 to strengthen cooperation between their 2 countries further, which will of course include oil production.

In parallel with what Dmitriyev said in Davos, President Ilham Aliyev of Azerbaijan, one of the largest former Soviet oil producers and a participant in the production deal with OPEC, said he believes the pact should be extended to the end of this year.

This is important for consumers as well as for investors because such a move could keep oil prices in the $60 to $70 range, which is where Brent crude oil quotes for the moment.

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

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HansParisis
The fact is that expecting a quick and complete trade deal with China is delusional. Resolving the trade balance with China is possible but will be difficult. There are also geopolitical questions which will take, without any form of exaggeration, many, many years to settle.
china, trade, deal, investors
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2019-12-23
Wednesday, 23 January 2019 11:12 AM
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