It is highly likely that this is a negotiating tactic by the US to raise the stakes and will go down well with Donald Trump’s core base of supporters by showing how tough he is. With the US economy and equity markets doing relatively well he probably concluded that he had considerable leeway to step up the game of bluff with China.
However, it also raises the real possibility that the trade talks will end in failure with the Chinese concluding that they would lose too much face negotiating under duress. This would dramatically escalate the trade dispute leading to uncertainty in the global economy once again. There are hawks in the Chinese government that believe that China has given away too much already and will balk at any further concessions.
Our base case remains that the US and China would prefer to agree to a trade deal since both countries need a deal for different domestic reasons. There is also considerable pressure from US and Chinese business groups who need a trade policy to create certainty and stability. The existing tariffs have been disrupting supply chains and impacting competitiveness.
Note that the trade deal does not need to be perfect, and it most likely won’t be. It just has to be good enough to scrap the tariffs that were imposed over the course of 2018. Any deal is likely to leave a lot of unanswered questions in the short term, whether they relate to the actual execution, the future of technology transfers, or any follow-through on a US-Europe trade deal. That said, any deal is unlikely to be as bad for the global economy as the prospect of 25% tariffs on all goods traded between US and China.
However, it is unquestionably the case that tail risk has increased significantly as there is a real danger that Trump has underestimated the importance of ‘face’ for China and overplayed his hand. In this worst case scenario we would expect the markets to be rattled and negatively affected. As mentioned in the recent quarterly outlook by Fabiana Fedeli, for markets to continue to rally, a US-China trade deal is necessary.
We will be watching developments very closely in the following days, but for now we stick to our long term base case and will not be changing our current portfolio positioning, as portfolio action at this point would be speculative in nature. We find it positive that despite the criticism directed at China, the commerce ministry has stated that the vice-premier Liu He would still arrive in Washington on Thursday for an abbreviated round of talks.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.