The trade war between the US and China has been ongoing for more than 18 months now, but with a presidential election race coming up, a short-term breakthrough could be in the works.
For those who have been monitoring the trade war between the US and China, you’d be forgiven for not being optimistic about speculation of a deal or a resolution. At many points in this messy battle, hopes of reaching the finish line have been quashed by a new development.
However, the race for the US presidency next year could prompt a turnaround from Trump. History tells us that presidents aren’t re-elected if they let the economy slide into recession, or if unemployment spikes in the run up to the election.
Trump wants to get re-elected, and he will be under pressure to sort this trade war out or at least put it on hold for a year, which would represent a win for his leadership and hopefully, the US economy. Further, any good news Trump can announce during the presidential race represents a win for his campaign.
Local conditions in China also suggest a renewed appetite to resolve the trade war in the coming months. The Chinese economy has slowed down, and trade battles don’t help in that context. Also, there’s a risk for the Chinese government that they will be negotiating with a tougher Trump if he is re-elected, into what would be his second and final term.
Chinese policy makers have been putting in place various different forms of stimulus into the economy, which in recent months, has started to show up in the data. However, any further escalation in trade talks threatens to de-rail recovery. There have been some signs that key sectors, like manufacturing, are stabilising, albeit at a low level. Again, this progress would be compromised if the trade war continues or gets any worse.
With all of those factors combined, I am reasonably confident we will see some de-escalation at least on the US-China trade war in the months ahead. That will be one to watch for global markets.
Subscribe below to SMSF News to receive my latest articlesShane Oliver, Head of Investment Strategy & Economic and Chief Economist
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