Thursday marks another round of crucial trade negotiations between the US and China, as China’s Vice Premier Liu He arrived at the US Trade Representative’s office in Washington to start two days of talks. Wall Street’s main indices fell ahead of the trade talks with the S&P 500 Index falling 0.3% to close at 2,870.7 points on Thursday. Meanwhile, in Asia, the Hang Seng Index plunged 2.4% to 28,311.1 points on Thursday.

US Markets Closed in the Red Ahead of Trade Talks

US stocks recovered their 1% losses in the early session on Thursday following US President Donald Trump’s statement that reaching a deal this week is possible and that he had received a “beautiful letter” from Chinese President Xi Jinping (The Star, 10 May). A Bloomberg article on 9 May wrote that according to a senior Trump administration officer, no call between the two leaders has yet taken place nor has one been scheduled at this time.

US Tariff Hike to Begin on Friday

US tariffs on some USD200bil. worth of Chinese goods are set to increase to 25% from 10% effective 12.01am (Eastern time) on Friday. Trump said that they are taking steps to tax nearly all of China’s imports as he accused Beijing of backtracking on a trade deal. Trump repeated a threat on Thursday to impose new 25% tariffs on USD325bil. worth of Chinese imports, which are not currently covered, mentioning that his administration has started preparing the paperwork.

According to Gregory Daco, the Chief US Economist-Oxford Economics, the tariffs would have an impact to global gross domestic product, decreasing the number by 0.5% by 2020. He wrote in his research note on Thursday: “if that bilateral tensions spiral into a full-blown global trade war, we would expect this to trigger a global recession.” (Bloomberg, 9 May).

US-China Trade Shortfall Narrowest Since 2016

Data released Thursday offered Trump a chance to claim his tariff war is yielding the desired results. The US trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced. Trump said that China has been paying billions of dollars to the US for the last eight months. However, economists disagree with the president and say the evidence is that American consumers and companies are bearing the costs of his tariffs via higher prices (Blomberg, 9 May).

Source: Macquarie Research - 10 May 2019