According to a September 5 CNBC report, Global Times editor-in-chief Hu Xijin hinted that there could be a possibility of a US-China trade deal. The Global Times is a tabloid newspaper controlled by the Chinese government.
Earlier today, he tweeted, “China and the US announced new round of trade talks and will work to make substantial progress. Personally I think the US, worn out by the trade war, may no longer hope for crushing China’s will. There’s more possibility of a breakthrough between the two sides.”
Xijin’s statement could indicate that China is still willing make a trade deal with the US. The statement also reflects his confidence that a US-China trade deal could emerge from the talks in October. In August, Xijin forecast China’s retaliation to US tariffs just hours before the official announcement.
The news could bring relief to tech investors who are worried about escalating US-China trade tensions. As a result of their hopes of a trade deal, the tech-heavy Nasdaq 100 (QQQ) could see positive movement in the coming days. In today’s trading, the Nasdaq 100 Index rose 1.7% and outperformed the 1.2% rise in the S&P 500 Index.
Tech companies Micron Technology (MU), NVIDIA (NVDA), and Apple (AAPL) traded with 4.1%, 5.2%, and 1.5% gains, respectively. Micron Technology, NVIDIA, and Apple have significant exposure to China. We expect the ongoing trade tensions to dent their growth outlook.
What is China’s stance?
In today’s tweet, Xijin expressed his personal views that the US is also impacted by the trade war and didn’t want to crush “China’s will.” The trade war has been a direct blow to the Chinese economy. According to Asian research giant Nomura, about 50 manufacturing companies have already left China. If the trade war intensifies further, we might see this trend continue.
Around 19.2% of China’s total exports—worth about $539.67 billion—are destined for the US. This figure is higher than Iran’s total GDP in 2017.
Nonetheless, the ongoing trade war is also expected to cause damage to the US economy. US businesses moving out of China could incur significant expenses for setting up new production facilities elsewhere. These extra expenses could be passed on to US consumers.
The trade war could prolong the uncertainty in the supply chain. Also, previous investments in the Chinese market might not yield returns.
Does Trump need the trade deal?
In the run-up to the November 2020 election, President Donald Trump seems confident about the future of the US economy as well as his reelection. However, we believe that without a China trade deal, he could face continued—and intensified—criticism. These negative sentiments among investors could dent his reelection chances.
Industry observers have expressed displeasure over the escalation of the US-China trade war. In August, most of the media outlets in the US highlighted recession fears following the inversion of the yield curve.
Due to deepening investor concerns about a recession, Trump operated in damage control mode last month. On August 18, a tweet by The Hill quoted the president’s statement that he didn’t believe the US would enter a recession due to the tax cut. Trump’s confident statement added that he believed the strong economy benefited US consumers—an important factor as the 2020 election approaches.