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US-China Talks: China Might Have an Ace Up Its Sleeve

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US-China talks

US-China trade talks have been fast-tracked as the March 2 deadline is fast approaching. A Chinese delegation is expected to visit the United States (SPY) this week for another round of talks. To be fair, the talks seemed to be headed in the right direction, based on comments by Trump administration officials as well as China (BABA)(BIDU). US President Donald Trump has also looked open to extending the deadline to make way for the deal. We’ve also seen some convergence in statements by the United States and China.

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Chinese media

Yet Chinese state-owned media have highlighted Trump’s vulnerability. According to the Global Times, “Analysts believe that if the two countries couldn’t come to an agreement, and as a result the US imposes more tariffs on Chinese products while China responds with fiercer countermeasures, it would be a catastrophic strike to global stock markets.” The paper adds, “In terms of avoiding such blows, the Trump administration is probably the most pressured.”

2020 elections

To be sure, since China exports much more to the United States, the country is more exposed to a trade war. However, the equation isn’t that simple. In democracies like the United States, leadership faces scrutiny from the public as well as media. Leading US companies like Amazon (AMZN), Facebook (FB), Apple (AAPL), Walmart (WMT), and Alphabet (GOOG) have opposed the tariffs.

It would be fair to assume that if US-China trade talks fail, stocks will crash—especially given the optimism that markets have priced in over the last month. Year-to-date, NVIDIA (NVDA), General Electric (GE), Intel (INTC), and Micron (MU) are up 17.3%, 33.8%, 10.2% and 32.2%, respectively.

With US elections coming up next year, Trump might not want to see investors lose money due to the trade war. See Trump Might be Getting Close to ‘the Biggest Deal Ever Made’ for more analysis

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