15 May

Is Trump Gearing Up for a Settlement with China?

WRITTEN BY Mayur Sontakke, CFA, FRM

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%.

Is Trump Gearing Up for a Settlement with China?

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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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