Today marks the start of a two-day meeting between China’s lead trade negotiator, Vice Premier Liu He and US officials, including Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.
Unless there is progress in the trade negotiations, US tariffs are expected to increase from 25% to 30% on $250 billion worth of Chinese goods as from next week. The much-anticipated meeting is hoped to provide comfort to investors amid growing concerns on the impact of the trade war on the global economic outlook.
A long-running story that has weighed down on global economic growth
Earlier in the week, the International Monetary Fund (IMF) highlighted how trade disputes are taking a toll on global trade.
Kristalina Georgieva, the new IMF managing director remarked that “global trade growth has come to a near standstill”. An analysis carried out by the IMF, estimates the cumulative loss of the trade war to amount to approximately $700 billion by 2020, which is the equivalent of 0.8% of global GDP.
This amount considers both the direct cost of the implemented and announced trade tariffs on businesses and consumers and the cumulative effect of the loss of confidence and market reactions.
Given the significant negative repercussions of trade disputes, the IMF issued a stark warning about the state of the economy and urged for a lasting solution and for countries to work to improve the global trading system, rather than abandon it.
Developments ahead of trade talks
Despite being unrelated to bilateral trade negotiations, tensions escalated on Monday as the US Department of Commerce announced export restrictions on 8 Chinese technology companies and 20 government entities.
These Chinese companies were added to the entity list, on the basis of alleged human rights abuses, particularly their involvement in repression in China’s western region of Xinjiang. This blacklisting restricts the firms from buying US-made goods and requires US suppliers to have a special licence to continue to sell to them.
Meanwhile, Chinese officials on Wednesday announced that they are offering to increase purchases of US agricultural products by $10 billion a year, in order to reach a partial deal. This is contingent on no increase in tariffs by the US, and thus seeks to hold off a new round of tariffs expected to be effective as from next week.
Although at the time of writing there are no signs that a broad agreement to fully end the trade conflict will be secured, China’s willingness to discuss a partial trade deal was well received. Later in the day, investors remained cautious following conflicting reports on whether the Chinese delegation was planning to leave Washington a day earlier.
The outcome of these trade negotiations remains anyone’s guess, but investors would seek comfort if at the least, the uncertainty overshadowing the trade war is somewhat reduced. It is the uncertainty about tariffs that is limiting business investment decisions rather than the tariffs themselves.
Despite that, in the current economic environment, investors are finding relief in easing monetary stimulus. The question still remains though whether lower interest rates and quantitative easing will be enough to jumpstart global economic growth. This makes the outcome of US China trade negotiations fundamental to the economic outlook.
Disclaimer: This article was issued by Rachel Meilak, Equity Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.