A Temporary Relief to Global GDP Growth, But Uncertainty Remains

Following the highly anticipated meeting between US President Donald Trump and Chinese President Xi Jinping at the Group-of-20 summit (G20) over the weekend, both US and China government officials have declared a truce and agreed to resume negotiations in their trade dispute, indicating that the risk of President Trump imposing an additional US$300bn in tariffs on all Chinese exports to the US, has now been put on hold “for the time being.”

While both leaders have not indicated how long they will halt any new tariffs increase, with the two countries to resume trade talk and continue negotiation, in our opinion, this may be only a temporary cease-fire and possibly without a trade compromise and resolution anytime soon.

Lifting of Ban on Huawei Will be Key to Trade Negotiations

Effective from 15 May 2019, US President Trump signed an executive order banning US companies from using Huawei’s communication technology products, as the company was added to US Commerce Department's "entity list," which also stopped Huawei from buying component parts and technology from US companies without approval.

Currently, according to latest news report, President Trump has announced and apparently lifted the trade ban on Huawei. However, as reported in the news, the US Commerce Department, which issued the ban against Huawei in May 2019, has not responded on how it will modify the company's status, while the US White House has also not immediately respond to direct US Commerce Dept to review the issue. Before the G20 meeting, as reported by Wall Street Journal, China’s President Xi insisted that the lifting of Huawei trade ban would be an integral component in any trade agreement with the US. As Huawei is still officially in the “Entity List”, we believe it may be too early to call the end of the trade war between US and China. As such, despite trade truce, we believe the balance of risks remain tilted towards the downside.

Forward-looking global indicators have trended lower from earlier tariffs

For example, the Organisation for Economic Co-operation and Development (OECD) Composite Leading Indicator (CLI), designed to provide early signals of turning points in economic activity six to nine months ahead, continued to fall in March.

Source: Affin Hwang Research - 1 Jul 2019