Is US-China Trade War Postponed to Fight off the Microscopic Enemy?

Published June 8th, 2020 - 12:30 GMT
Is US-China Trade War Postponed to Fight off the Microscopic Enemy?
A new and even more uneasy standoff has emerged between the two biggest economic powers in the world, the USA and China. (Shutterstock)
Highlights
While the Covid-19 pandemic has had a huge and sudden impact on the global economy, it is a much shorter-term problem than a serious rupture in global trade would be.

As the virus crisis fades for now at least, an old friend is once again in the financial markets driving seat.

While the Covid-19 pandemic has had a huge and sudden impact on the global economy, it is a much shorter-term problem than a serious rupture in global trade would be.

The market had priced in the pandemic with heavy falls by late March, well before it actually peaked and it has largely been upward since then. Vast central bank stimulus measures have helped significantly in this regard of course.

Strong US jobs numbers on Friday saw markets surge again at the end of an already gung ho week. The S&P 500, for example, closed at 3,194, up from its recent low of 2,200, while the FTSE 100 hit 6,484, having been as low as 4,994. 

The FTSE 100 has climbed above 6,400 after sinking to lows of under 5000 in March

The FTSE 100 has climbed above 6,400 after sinking to lows of under 5000 in March

The S&P 500 has recovered the majority of its lost ground from the coronavirus plunge

The S&P 500 has recovered the majority of its lost ground from the coronavirus plunge

The pandemic will have to radically alter its current downward trajectory if it is to trouble investors greatly again. 

As progress is made with vaccines and treatments, and reports emerge that SARS-CoV-2 is losing its potency, a resurgence of the virus grows less likely, thankfully.

The risk now will be the hangover from the lockdowns, in terms of unemployment, corporate struggles and the winding down of support schemes. The fact that America has already returned to rising jobs number is encouraging though. 

What is certain to continue to be a dominant theme in the markets is world trade.

Unless there is a resurgence in infections around the world, our microscopic enemy will continue to be overshadowed by trade tensions and strained international relations.

A new and even more uneasy standoff has emerged between the two biggest economic powers in the world, the USA and China.

With international tensions already heightened by China’s role in the origin of the pandemic, its decision to change the legal status of Hong Kong could have acted as the trigger for America and others to introduce heavy sanctions.

The Donald Trump administration has stepped back from the brink on this though for now, much to the relief of the financial markets. A standoff, however fragile, is infinitely preferable to an all-out trade war.

US President Donald Trump and China's President Xi Jinping attend a meeting on the sidelines of the G20 Summit in Osaka last year

US President Donald Trump and China's President Xi Jinping attend a meeting on the sidelines of the G20 Summit in Osaka last year

With what looks to be a closely fought American election coming in November and an economy reeling from the pandemic-induced lockdown, the US government looks set to let things simmer with China until after the votes are cast.

Should Trump win in November though, we can expect a very combative December and start to 2021. Rival candidate Joe Biden's stance is unclear at this stage.

Some way behind in scale and global importance of course, the second big trade flashpoint in the world is right here in the United Kingdom. 

Here too though, there is breathing room for the global economy and financial markets.

As round after round of trade deal talks between London and Brussels continue it feels very much like we have been here before quite recently.

British lead negotiator David Frost and his EU counterpart Michel Barnier

British lead negotiator David Frost and his EU counterpart Michel Barnier

Nothing will become clear until November at the earliest, and probably not until shortly before Christmas. 

With recent history as our guide, what we are likely to see is another six months of posturing, hostile off the record briefings to various media and a few public tantrums.

Only when the real deadline of 31st December is much closer, will we know whether the two sides can put their mutual economic interest above the politics and strike a trade deal, or not.

In the meantime, investors are likely to look past the headlines coming out of the talks.  

 

ALEX SEBASTIAN

The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates. 


© Associated Newspapers Ltd.

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