The Status of China US Trade Talks

Susan Jung |
Categories

Negotiations are fun, right? China in the last week has pulled back a number of their proposed concessions in advance of the Vice Premier’s visit to the United States on Friday. CNBC.com highlighted the changes in China’s proposals regarding substantive points previously negotiated.

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The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world's two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks.
 
The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters.
 
In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

Source: May 8, 2019 CNBC.com article via Reuters 
https://www.cnbc.com/2019/05/08/china-backtracked-on-nearly-all-aspects-of-us-trade-deal-sources.html 

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In response to China’s latest proposals, the United States announced that strong tariff action would occur as planned on Friday if no agreement is reached. There is no doubt continued discussions occurring behind the scenes in advance of Friday’s meeting in Washington.
 
What’s going on? Does this mean that disaster is likely and that there will be no trade deal?
 
What you are seeing play out right now is simply pure negotiation tactics employed by both sides. It’s part of the noise that occurs as a deal is negotiated. We fully expect that there will be a trade agreement though I believe that the likelihood of this occurring on Friday is not great. I believe it is more likely a trade deal will be reached sometime this month rather than this week.
 
This matters for investors because China is an important part of the global economy. China economic fundamentals are already suggesting that the Chinese economy is slowing down in a long-term, meaningful way. The last thing China wants is more headwinds for its export sector. This is exactly what would happen if tariffs remain in place.
 
We carefully assess the revenue and business initiatives of companies that we research to determine what international exposure these companies have. Additionally, we analyze ETFs and funds as well to see what exposure exists in these positions. We have positioned portfolios on the expectation that global growth will slow, emerging market growth will also continue to slow, and that there will be a trade deal at some point between China and the United States. 
 
At the same time, we have been cautious in our positioning as it’s anyone’s guess in the end what might occur. Predictions are not certainties. For that reason, we are careful that we are diversified and cautious in our allocation adjustments.
 
We will keep watching and adjusting as needed. If you have any questions, please let us know. Always happy to help.

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