Follow Paul Donovan

Bye-bye trade tensions?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • US-China trade talks went on longer than expected. The US president has sent upbeat tweets on the outlook. Trade problems will not disappear. However, with luck trade tensions may calm to a situation similar to early 2018.
  • Trade tensions between the US and China have had limited economic damage so far. Global trade was stable as a share of the economy in 2018. The trade cycle was exactly normal. But both China and the US have reasons to calm trade tensions.
  • US trade taxes give Chinese exporters a reason to move part of their business out of China. If the last stage of making something happens in another country, anti-China trade taxes do not apply. Firms say that it takes three to six months to move. Last year's US trade taxes may cause Chinese firms to move now. China would like to stop that.
  • The US equity market was hurt by the trade taxes. Trade taxes hurt equities far more than the economy. President Trump is focused on the equity market and does not want it to fall. US domestic politics are also getting more focus than trade. The government shutdown may make calming tensions with China easier.