Nothing will be as important this week to the financial markets as the meeting between U.S. President Donald Trump and Chinese President Xi Jinping during the November 30-December 1 summit of the Group of 20 in Buenos Aires.
Ahead of the weekend meeting days when the talk is optimistic and a deal seems probable will see global stocks rally. Days when the talk is pessimistic and no progress seems likely will see global stocks drop.
That’s how deeply worried global markets are that the U.S.-China trade war, if allowed to continue to its next stage, will do big damage to the global, Chinese, and U.S. economies.
It’s extremely unlikely that the meeting will result in some agreement that ends the confrontation between China and the United States over tough issues such as U.S. demands for greater protection for U.S. intellectual property and the U.S. call for an end to what the Trump administration has branded as unfair subsidies to Chinese industries and what the Chinese government regards as key measures to move China forward in the global technology market.
But I don’t think the market expects that kind of deal and therefore I think stocks would climb on news of much more limited progress.
The key potential positive development would be an agreement to freeze tariffs at their current rates and to forgo the Trump administration’s plan to expand its program of higher tariffs from $250 billion in Chinese exports to the United States to include higher tariffs on an additional $267 billion in Chinese goods. That expansion would extend higher tariffs to just about everything that China exports to the United States. The initial 10% tariffs on $200 billion in Chinese goods are scheduled to increase to 25% in January. The Trump administration could announce that it was holding that increase in abeyance because the talks between the two presidents have been promising. There’s also the U.S. threat to tax Chinese auto exports at a 25% rate.
There’s precedent for an announcement that the U.S. is holding off on tariff action for the moment after productive talks in the Trump administration’s decision to delay tariffs on European auto exports while the United States and the European Union continued talks on that and wider trade issues.
A gesture such as that vis-a-vis China would generate a substantial sigh of relief from very nervous financial markets. The week is likely to present a wild ride until the Trump-Xi meeting, however.
