Tags: trade | war | china | us | trump

I Don't Think US Will Enter Trade War With China

I Don't Think US Will Enter Trade War With China
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Monday, 23 April 2018 10:27 AM Current | Bio | Archive

U.S. Treasury Secretary Steven Mnuchin said on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington that he might travel to China to discuss trade, a move that could ease tensions between the world’s two biggest economies.

“I am not going to make any comment on timing, nor do I have anything confirmed, but a trip is under consideration … If we have a deal, you’ll know what it looks like when we have it,” Mnuchin said.

This is encouraging the markets to hope that there might not be a trade war.

Added to that, the United States has yet to detail any of the additional $100 billion worth of goods, partially made in China, that President Donald Trump wishes to tax.

Nevertheless, it all ends up to a rather benign trade outlook. I personally still don’t expect a trade war between China and the U.S.

Now, what we probably need to see is something that creates a “tweetable” moment.

Trump needs to be able to tweet something like “I won the trade war” or perhaps “Mission accomplished.”

There doesn’t have to be any substance to such claims and it is likely not to be any substance to such claims. Just a declaration of victory would be enough.

Anyway, on Saturday, China’s new central bank governor, Yi Gang, said in a statement to the International Monetary and Financial Committee in Washington that China would “vigorously” push forward the reform and opening of its financial sector, significantly relax market access restrictions, create a more attractive investment environment, strengthen the protection of intellectual property and actively expand imports.

As always, let’s wait and see.

From last week's spring meetings of the IMF and World Bank, investors who plan long-term investments over the next couple of years it might be worthwhile taking note and into account a couple of points of the communique that was released on Saturday by the International Monetary and Financial Committee (IMFC), which is the main advisory panel for the IMF. 

The communique reads among a lot of other things:

  • Risks are broadly balanced in the near term but remain skewed to the downside beyond the next several quarters. Rising financial vulnerabilities, increasing trade and geopolitical tensions, and historically high global debt threaten global growth prospects. Demographic headwinds and subdued productivity growth may reduce the potential for higher and more inclusive growth going forward.
  • In line with central bank mandates and mindful of financial stability risks, monetary accommodation should continue where inflation remains weak and be gradually withdrawn where inflation looks set to return to central bank targets. Fiscal policy should be flexible and growth-friendly, rebuild buffers where needed, avoid procyclicality, create space to invest in infrastructure and workforce skills, and ensure that public debt as a share of GDP is on a sustainable path.

In simple words, long-term investors, not traders, could well by keeping in mind that bumps in the road ahead will be unavoidable. 

Finally, another area of trade dispute is the U.K.’s long goodbye from the European Union. Normally this is a topic too tedious to pay too much attention to, but this week may see a little more political drama.

Over the weekend, the media referred to leaked ideas that the U.K. might stay in some form of a EU customs union.

There was speculation that such a decision might lead to the resignation of the UK Foreign Secretary Boris Johnson, but there was also speculation that such a resignation may not be a major problem.

It is possible that Parliament will vote against U.K. Prime Minster Theresa May’s wish to leave the actual customs union and that will then be used as the rationale for remaining in.

Now, for investors it could be prudent keeping in mind that in case the U.K. should remain part of a customs union with the EU, that would mean that the U.K. would be unable to strike trade deals with other countries. 

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

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I personally still don’t expect a trade war between China and the U.S.
trade, war, china, us, trump
Monday, 23 April 2018 10:27 AM
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