China: Resolving the Trade War Could Open Pandora’s Box

Trade war

As we discussed previously, the US (SPY) and China (FXI) ended the trade talks on January 9. The two sides released their respective statements. While the trade war has amplified China’s slowdown, a trade war resolution might not get the economy on track. Several indicators have shown that the slowdown is getting worse. Automotive sales (F) (GM) have been a particularly weak spot.

China: Resolving the Trade War Could Open Pandora’s Box

A trade war resolution would help restore business confidence in China. Reports have suggested that businesses are cutting down on their investments in China and moving their manufacturing outside China to evade US tariffs.

Pandora’s box

As China moves forward to lower its trade deficit with the US, it could open Pandora’s box for the country. Several other countries run massive trade deficits with China. If China bows to the US demands and works to address the trade deficit, the country would face similar demands from other countries in Europe. India, which runs a large trade deficit with China, has also been pushing the country to work toward bringing down the deficit.

China’s economy has been facing several headwinds as it tries to steer its economy to the next level. China has been focusing on advanced industries like electric vehicles (TSLA) (NIO). Read China’s Slowdown: Analyzing the Known and Unknowns for more analysis of China’s economic situation.

Read Why China Might Need a New Economic Model Now to learn more about China’s slowdown.