US Secretary of State Mike Pompeo expects the US-China trade war to end next year. Meanwhile, Alibaba (BABA) cofounder Jack Ma forecast last year that the trade war could last decades.
CNBC reports that Pompeo told “a group of business executives and free trade economists that he believes the trade war with China could come to an end by the 2020 presidential election.” However, despite several meetings between the two countries, a deal has been elusive. Conversely, last year, Alibaba co-founder Jack Ma said the US-China trade war could last 20 years. Alibaba stock, up 29.3% year-to-date, is reportedly slated for a Hong Kong listing.
Trade war escalation
US-China trade tensions’ escalation has diminished hopes of a deal. This month, Donald Trump called China a “currency manipulator,” and has proposed tariffs on more Chinese goods. Whereas tariffs on some products, including Apple’s (AAPL), have been delayed to December 15, others could kick in next month. Apple has been trying to convince Trump that tariffs would hurt its business. The US has already slapped on 25% tariffs on $250 billion in Chinese products, to which China responded by not buying US agricultural products.
Impediments to a US-China trade deal
A US-China trade deal faces several challenges. Firstly, there’s a lack of confidence between the two sides. China sees the trade war as a ploy to stop its global rise, while Trump sees it as necessary in addressing China’s alleged trade rigging.
Secondly, political issues, namely those in Taiwan and Hong Kong, have also added fuel to the US-China clash. Taiwan, Tibet, Hong Kong, and Xinjiang are all sensitive issues in China, which has made it clear it would not tolerate outside interference in what it sees as domestic matters. Pompeo also said that violence in Hong Kong would make a trade deal with China “more difficult.”
Trade war hurting everyone
While Trump may see the trade war as an easy win, the tensions are hurting both countries. Corporate investment has taken a backseat amid trade uncertainty. While the US economy has been resilient this year, it is largely due to the consumer sector’s strength. The SPDR S&P 500 ETF (SPY) is up 17.2% this year, whereas the iShares China Large-Cap ETF (FXI) has risen only 0.83%. The International Monetary Fund has admitted that tariffs are hurting China’s economy.
Investors have been apprehensive about the US-China trade war. Dismal economic data and the yield curve’s inversion have added to recession fears. This month, the SPDR S&P 500 ETF has lost 2.5%, while the iShares China Large-Cap ETF (FXI) is down 5.1%. Apple is down 0.88%, but Alibaba has gained 2.4%.