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Is Trump Gearing Up for a Settlement with China?

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Candid, constructive, and inconclusive  

On Friday, US indexes rose after Trump’s tweet calling the talks “candid and constructive.”  However, the United States and China ended two-day tariff talks on Friday without any conclusion. Tariffs on $200 billion worth of Chinese goods also came into effect on Friday. Trump also instructed officials to place tariffs on remaining Chinese imports (worth ~$300 billion).

As a result of anxiety over the trade deal, both Asian and US indexes fell sharply on Monday. The S&P 500 (SPY) Index fell 2.4%, the industrial-heavy Dow Jones (DIA) tanked 2.38%, and the tech-focused Nasdaq (QQQ) was the biggest casualty,  losing 3.4%.

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China retaliates

Although Trump warned China not to hit back, China (FXI) announced tariffs on US goods entering its borders on the same day the markets crashed. China said $60 billion worth of US goods would attract tariffs up to 25% starting June 1.

Trump’s stance

While President Trump remained defiant in his tweets, his comment that the current trade talks are just a squabble seems to be a sign of reconciliation. Through a tweet on Tuesday (a day after the crash), Trump said that his “respect and friendship with President Xi is unlimited.”

While the markets remain tense, I feel that Trump may be gearing up for a settlement with China as the trade war is also hurting the US economy. The PMI for April pointed to the second-softest manufacturing activity since June 2017.

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