Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

New US-Sino Trade Truce: Tougher Talks, More Economic Damage

Economics / Protectionism Jul 03, 2019 - 01:21 PM GMT

By: Dan_Steinbock

Economics During the G20 summit, China and US agreed to re-start the trade talks. As the US trade war is slowing China’s growth, the collateral damage is now spreading in the US economy, while undermining global prospects.

Despite the White House’s efforts to lobby other countries against Huawei, President Trump also said that US companies can supply the technology giant, which the US, Department of Commerce blacklisted last month.

After Osaka, the negotiators face challenging obstacles, despite still another temporary timeout. Deep bilateral disagreements prevail about major structural issues.


But what’s the current economic impact of the new trade truce?

Limited short-term impact on China

In China, the most recent US tariff hikes on $200 billion of Chinese US exports is expected to penalize about 0.1% of China’s GDP growth in the coming year. That is enough to create significant concern, but not sufficient to cause substantial damage – yet.

Even if the US would impose 25% tariffs on all goods from China, the largest Chinese companies would likely adjust, thanks to their domestic focus.

As the US-based Standard & Poor’s has stressed, half of the rated Chinese companies are state-owned-enterprises (SOEs), which operate in sectors with limited US exposure.

Moreover, the vital property sector is also reliant on domestic demand.

Nevertheless, the secondary effects of a protracted and broader trade war could prove more challenging over time. In China, such a scenario could mean greater shifts in supply chains, currency volatility, eroding market confidence. 

Despite Trump’s bravado, the US economy is far from immune to trade-war damage, however. In fact, the trade wars’ adverse impact is only beginning to bite in the US.

Broader impact on US industries

In the US, the tariff increase from 10% to 25% on $200 billion of Chinese imports could directly penalize some 0.3% from growth in the coming year.

Typically, US companies that garner a significant share of their revenues from China will take the most severe hits. That’s why Trump wants China to buy “tremendous” amounts of farm goods. US farm sector has suffered the most of retaliatory measures, while the White House’s $12 billion bailout package for farmers has failed to soften the blow.

In fact, the Trump administration has worked itself into a double-bind. If it piles up another bailout of $15 to $20 billion, it might prove too little too late in the farm sector, while other industries could demand similar packages.

The damage is spreading to advanced industries, which include semiconductor giants, such as Micron Tech and Texas Instruments (40% to 60% of revenues from China), and other technology conglomerates, including Apple and TTM Technologies (about 20%), and consumer and auto companies, such as NIKE and Cooper-Standard (10% to 20%).

The White House is pressuring US firms to move their supply chains away from China. Reportedly, Apple is considering diversifying15% to 30% of its capacity away from China. Yet such proposed moves would come with a huge cost.

None of the new country destinations can offer a high-level technology and logistics infrastructure that would be comparable to that in China. So the costs of these firms will climb, which will penalize their global competitiveness. Worse, today China is the world’s largest and most rapidly-growing marketplace. If US companies reduce their presence in China, they are taking a cut in their most vital future source of income.

That’s why Trump said in Osaka that US companies can – for “time being” – supply Huawei. These giants, particularly Intel and Alphabet (Google) have lobbied intensively for Huawei, which is their major client and a substantial source of revenues. Moreover, Qualcomm and Broadcom and US semiconductor and technology sector would be hit by the loss of Huawei orders.

Collateral damage in US economy

With continued trade tensions, the damage is spreading in the U.S. economy. As the fiscal stimulus impact is fading, private investment is softening and uncertainty increasing. US economic growth is likely to remain below 2.5% in 2019 and decelerate to 1.8% in 2020.

As the impact of the Trump tax cuts and other one-time benefits will diminish, US economy will be more vulnerable to a recession risk, even a major market correction.

Worse, if the talks fail and the White House will choose to expand tariffs against all Chinese trade, it will be harder for US firms to pass on costs to consumers, which will penalize these companies’ competitiveness.

If US would raise tariffs against all Chinese imports, US growth could plunge below 1 percent in 2020 – at the eve of the midterm election.

Global economic prospects

Global economic integration is typically measured by trade, investment and migration. After a decade of slow recovery, each indicated progress. But since 2018, the Trump administration’s tariff wars have effectively undermined the expected global recovery.

World investment remains sub-optimal. World trade has suffered extraordinary decline. World migration has plunged and the number of globally displaced now exceeds 70 million people – far more than after World War II.

Of course, there is still a chance to salvage the US-China trade talks. That, however, would require a substantial reassessment of the US stance and objectives. China will not sign a trade deal that is predicated on unilateral geopolitical objectives rather than economic realities.

The final outcome cannot be based on coercion. It must rely on a mutual effort at a sustained reconciliation that will reflect both countries’ sovereign interests and the compelling long-term economic realities of the global economy.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/  

© 2019 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dan Steinbock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in