The U.S.-China trade talks, which are nearing their end are facing a possibility of breakdown under of the threat of U.S. President Donald Trump. In a tweet on Sunday (May 5), Trump said that the tariff of 10% on US$ 200 billion of Chinese imports would rise to 25% on Friday (May 10), in addition to another 25% of duties to be leveraged "shortly" on US$ 325 billion, CNBC reported. "The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" Trump tweeted. In another tweet on May 6, Trump said that the United States has been losing about US$ 600 billion to US$ 800 billion a year on trade, and stated that "we're not going to be doing that anymore!".
Trump's sudden change of mind on the U.S.-China trade talks has aroused strong reverberations and turbulence in the global capital markets. China's stock market was among the first to bear the adverse impact. The Shanghai composite index tumbled 5.6% while the Shenzhen A-share index plunged more than 7% on Monday (May 6). On the other hand, US stocks also suffered a sharp sell-off for the day, with the Dow was opening down as much as 471 points, the S&P 500 traded down 1.2% at its lows and. The Nasdaq briefly fell 2.2%. At around 22:45 on the evening of Beijing time, the Dow fell 260 points, the S&P 500 fell 1% and the Nasdaq fell 1.2%.
As the two largest economies in the world, if China and the United States continue quarrelling over trade negotiations, it will undoubtedly create a "huge earthquake" with global impact. If China and the United States enter into long-term trade frictions, it will undoubtedly bring about a cold winter to the global economy. However, the question is this, how likely will this scenario happen? Is Trump really willing to risk more than half a year of tough negotiations for a winless fight with China? This is yet to be known.
According to a source quoted by The Wall Street Journal, China, which is preparing to send a team of 100 people to the United States for trade talks, is "surprised" by the new threat from the United States. China may withdraw from the talks this week and abandon its six-month trade truce with the United States. The Financial Times quoted analysts as saying that Trump's aggressive tweet may be just a negotiating ploy, nothing more than a play on his "extreme pressure strategy" to raise the stakes before the key negotiation, and therefore forcing the opponent to accept an expected condition. Other analysts said Trump's threat was a message to China: do not come to the U.S. with "bounced checks" and do not play for time to diminish the U.S.'s bargaining chips. In addition, Trump's sudden pressure may also indicate that he now feels that there is reduced pressure on China's end to successfully strike a deal with the United States.
Given China's cultural and diplomatic traditions, the sudden threat from Trump is definitely unpleasant. Although China is an influential country, it is not familiar with or unaccustomed to the "two-faced" approach which is common in international politics. Thus, it is a normal reaction for China to feel surprised on the sudden change.
Many clients have asked ANBOUND: What will be the next step in the U.S.-China negotiations? Will the trade talks proceed or be abandoned? What impact will this have on China's policies? And what about the impact of this on the United States? There are also market participants who are worried that if the talks between China and the United States do collapse, it will not only have a huge impact on China's trade, finance, and investment sectors but will also affect China's future policies. For example, China may adopt a "bottom-line thinking" to cope with the fickleness of the United States and even consider how it might pursue development without the American market. If this happens, will it lead to the retreat of China's reform and opening-up policy, and in turn the favoring of a "self-reliance" policy?
As an independent think tank, the research team of ANBOUND believes that the more sudden changes China faces in the U.S.-China negotiations, the more it needs to keep calm, so as to clarify the situation and make objective judgments. Although ANBOUND's scholars had, in internal discussions four days ago, warned of the danger of a "sudden death" in U.S.-China negotiations, we do not believe that the talks are now over due to Trump putting extreme pressure on it.
In the worst-case scenario, even if the talks do break down, it doesn't mean China's economy is about to collapse. We've never seen it that way, and we haven't actually expressed this view publicly. However, If China and the United States fail to reach an agreement or fail completely, China will certainly face some difficulties, but it will not reach the stage of collapse. Rationally, the trade negotiations between the two major countries in the world are not childsplay. In today's chaotic world, it is a beneficial need for both parties to ensure that a trade deal can be reached. If a collapse in trade talks does not mean a collapse for China, it is not necessarily a disaster for the United States as well, at least the United States does not think so now. Presently, there are still uncertainties in the judgment and. It will take time for things to settle down. But more importantly, is stands to see whether China will take the right approach.
Final analysis conclusion:
Trump's sudden threat has cast a shadow over the U.S.-China trade talks, which also had a significant impact on the capital markets, but this "extreme pressure strategy" does not mean the end of U.S.-China trade talks. The necessity of the trade talks remain and will continue to move on according to the related logic. As such, the domestic capital markets may have somewhat overreacted.
