With just two weeks left until the trade truce deadline, will we finally see the US and China come around the negotiation table to strike up a deal and end a bitter trade conflict that has lasted over a year? In the following interview Huang Juin Hao, Senior Portfolio Manager shares the possible scenarios of the trade talks and market implications.
1) Trade negotiations between US and China are currently ongoing, but the 90-day truce period is set to end on 1 March 2019. What are your expectations of the talks and possible outcomes?
Our expectations have shifted. Towards the end of 2018, the market was expecting higher odds of an escalation or widening of trade tariffs against China. This was in part, due to the extremely short time period available for negotiations due to US Christmas holidays in December’18 and China’s Chinese New Year holidays in February’19.
However, the market has since moved their expectations towards a higher probability of a neutral or positive outcome for trade talks after more conciliatory signals from both China and US.
In latest news, US President Donald Trump has expressed willingness to extend the March 1st deadline, while Chinese President Xi Jinping and Vice Premier Liu He is reportedly scheduled to meet with key members of the US trade delegation including US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin in Beijing this Friday. We believe the meeting between the top trade envoys signals goodwill and firm efforts to come to a resolution that would be agreeable to both sides.
We are currently leaning towards a base case that sees the status quo remain (no further escalation or de-escalation of the current 25% tariffs imposed on USD$ 250bn worth of goods), and one where it would allow for the deadline to be extended and for talks to be stretched out towards the end of 2019.