Market players are optimistic about the prospective US-China commerce dialogues, hoping that these might de-escalate the increasing trade skirmish between the planet’s biggest economic giants. Such a turn of events could potentially dispel existing uncertainties plaguing the financial domain, while most are not anticipating a substantial landmark in the immediate future. The discussion scheduled in Switzerland could indicate a substantial shift since the day US President Donald Trump initiated broad tariffs early April, causing turmoil in the international commerce scene and triggering mass market fluctuations.
An estimate of several hundred billion dollars make up the trade volume being risked. The 145 percent tariff on Chinese goods is effectively a working embargo, with disputes reaching beyond mere commercial matters. The officials at the US-China commerce talks in Geneva called it day, with the next round of discussions set for the following Sunday.
Late Saturday, President Trump commented on the on-going negotiations, highlighting the smooth yet constructive dialogue that lead to significant strides forward, though he did not divulge further details. In recent times, market investors have aired their expectation that the most detrimental outcomes of the trade war won’t materialize, sighting signs of easing tensions between the US and China as a main driver of the equity sector’s recovery.
However, despite Trump’s comments hinting towards lesser tariffs on Chinese goods and the unveiling of a US-Britain trade agreement on Thursday, numerous market participants publicly voiced their low expectations for this weekend’s trade talks. Their hopes predominantly lay in the prospect of the bilateral discussions not going awry during the early stages of what could potentially be long-winded negotiations.
Both major economies have a common interest, maybe even a necessity, to arrive at a comprehensive agreement. However, at this nascent stage, it appears that neither nation is overly inclined to rush the process. Both parties are curious to observe how the other copes with economic hardships.
The trading relationship between these countries experienced massive strains, when the US drastically raised tariffs on all Chinese imports to 145 percent, prompting China to reciprocate by hiking the rates on US imports to a staggering 125 percent. On Friday, Trump’s rhetoric suggested an 80 percent tariff on Chinese imports seemed appropriate – the first hint of a possible alternative to the colossal 145 percent levies – sparked hope that progress might be on the horizon.
The crucial S&P 500 index has made up for the significant losses it incurred in the immediate aftermath of the tariff pronouncement on April 2. Businesses continue to caution investors about the effects of these tariffs and the insecurity they breed. Even though the S&P 500 is still trailing its all-time high from February by roughly 8 percent, and 4 percent behind its year to date performance.
Amid the chaos ensuing from the tariffs, the stunted consumer sentiment surveys and other unsatisfactory data have compounded concerns about the health of the US economy. Nonetheless, the majority of economic data points towards a surprisingly robust economy. Market instability is still a reality, demonstrated by the persistently high Cboe Volatility Index.
Equities experienced a significant hike on April 9, following President Trump’s temporary suspension of some of the more insurmountable tariffs for a 90-day period, yet investors are still bracing for further market oscillations. Any positive signs from the commencing dialogues would be well-received, and could potentially allow China to concentrate more on its own economic woes.
Speculations about other scenarios, where both parties lose, are actively discouraged. Though striking a quick agreement with Britain was successful, other trade negotiations may prove more challenging. China, with her complex issues, is predicted to pose the most formidable hurdle.
As the geopolitical entanglement overlaps with the trade alliances, charting the path forward is far from simple. Speculations about potential trade agreements with India, Japan, and perhaps South Korea in the future are on the cards. But, the proposition with China is undeniably more complex and is predicted as the last one in the pipeline to materialize.
Investors are expressing concern that potential negative outcomes haven’t been adequately considered in market valuations. If Geneva’s discussions result in explosive disagreements and overly provocative language being used, these factors are not believed to have been priced in. Some suspect a market downturn may follow if the talks fall apart.
It’s widely believed that the market might be satisfied with a few modest advancements, according to several investors. The consensus among them seems to be that some meaningful forward motion would be useful, although they don’t require an overly optimistic outlook.