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Can China Trade Talks Propel US Stocks to Record Highs?

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  • Reportedly, the China trade talks are scheduled to start in October. Previously, the in-person talks were set to resume in September. However, the timeline looked far-fetched given last month’s escalation in the US-China trade war.
  • Resuming the talks is positive news for markets. The S&P 500 futures are pointing to a strong opening today. Several US companies like Apple, NVIDIA, Boeing, and Amazon have been hit by the US-China trade war. However, China gave Tesla tax relief despite the trade war.

US-China talks resume

On Thursday, CNBC reported that the US-China talks will be held in October. China’s Vice Premier Liu He called the US negotiating team. While China’s Commerce Ministry confirmed that the meeting will take place in October, the USTR (United States Trade Representative) had a different version. The USTR spokesperson told CNBC that the two sides had a phone call. However, the spokesperson didn’t confirm that the two sides will meet in October.

Stumbling blocks in US-China talks

In the past, the US and China provided different versions of the trade talks. Last month, President Trump said at the G7 summit that China called the US negotiating team to resume the trade talks. However, China denied that the call took place and that it wants to resume the trade talks. There have been several such instances since the trade war erupted last year. Notably, the US and China’s statements gave different versions of the agenda. There was a gradual convergence in the statements. However, the situation is still complicated.

US-China trade war

The last US-China talks were held in July. Since then, there has been a visible escalation in the trade war. Last month, the US designated China as an official “currency manipulator.” Both of the countries announced fresh tariffs. Some of the tariffs came into effect in September. China also stopped buying US agricultural products. Notably, the trade war impacts companies and consumers in both countries. Apple (AAPL), NVIDIA (NVDA), Boeing (BA), and Amazon (AMZN) have been hit by the trade war. Meanwhile, Tesla (TSLA) received respite from China. Several Tesla models are exempt from the purchase tax.

US companies

Last month, Apple CEO Tim Cook briefed President Trump about how the tariffs would dent the company’s competitiveness. Earlier this year, Apple and NVIDIA said that China’s slowdown hurt their earnings. Boeing is already battling the 737 MAX crisis. To increase Boeing’s woes more, China is swapping Boeing for Airbus amid the trade war. Several US companies including Amazon opposed President Trump’s tariffs last year. Resuming the US-China trade talks is a positive development. Deescalating the US-China trade war would help restore the sentiments. Notably, several surveys have shown that the trade war hurts business and consumer sentiments.

What should we expect from US-China trade talks?

Investors who have been following the US-China trade talks would agree that there have been several highs and lows over the last 15 months. So far, we’ve seen three truces. However, we get similar cycles after the truce. Both of the countries would have to give their hardline positions in order to make the US-China talks fruitful. President Trump might not get the trade deal that he’s envisioning. From China’s perspective, it needs to recognize genuine US concerns. Right now, we’ll keep our fingers crossed.

Price action

Looking at US markets, the SPDR S&P 500 ETF (SPY) has risen 18.7% this year. US markets are within striking distance of their all-time highs. Apple, Amazon, NVIDIA, and Boeing have gained 34.2%, 19.9%, 26.8%, and 12.4%, respectively, year-to-date. However, Tesla stock has fallen 33.7% during this period. If there’s positive progress in the US-China talks, we could see US stocks increase. Trade war uncertainty spooked investors. US markets could move to a new record high if the US-China talks yield results.

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