Sunday afternoon Donald Trump announced that trade talks between the U.S. and China had been productive and decided to delay the imposition of new tariffs to the country.
Trade War Between the U.S. and China
As we reported over the last week, the U.S./China relations have been incredibly volatile since 2017, with new rounds of tariff impositions and accusations from diplomats. We also reported two days ago that the charges both against Huawei and their executives could be part of the negotiation process in the trade deal. The newest round of tariff impositions was set to be enforced at the end of this week with targeted goods receiving between a 10%-25% tariff. This news came from President Donald Trump Tweeting that the trade talks have gone very well and are in “advanced stages”, so the tariffs will be delayed hoping for a resolution.
China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?
— Donald J. Trump (@realDonaldTrump) February 25, 2019
President Donald Trump when addressing the media on Monday heralded the use of tariffs when renegotiating the North American Free Trade Agreement (NAFTA) into the United States-Mexico-Canada Agreement, specifically citing the use of targeted tariffs on the Canadian automotive industry to have the deal reached. The Chinese administration had largely targeted American agriculture, while the American counterparts had targeted the steel and aluminum industry, and the electronics industry in China.
Part of the negotiations includes the U.S. requesting that China have its exchange rate more flexible and market-based rather than have the Chinese central bank essentially set the currencies value. The Trump administration has long accused the Chinese market of currency manipulation and artificially keeping the currency value lower to increase exports to other markets. The Renminbi (yuan), is a policy currency, which means their value is directly set by the People’s Bank of China. In contrast, the U.S. dollar can rise and fall by free market trading but is also impacted by policy decisions from the Federal Reserve.
Stock Market Rally
As CNN pointed out, the Shanghai Composite index (SHA:000001) , which is the equivalent to the S&P 500, Dow Jones, or NASDAQ indexes; rose over 5% on the news, this was the largest daily gain for the index since 2015. The growth of the Chinese economy slowed down in 2018 which was noted by almost every semiconductor company in the Q4 year-end earnings such as Apple (NASDAQ:AAPL) , NVIDIA (NASDAQ:NVDA), Intel
(NASDAQ:INTC), and AMD (NASDAQ:AMD) when reporting their revenues. It will be very interesting to see how trade talks continue in the short term and how it will impact multinational corporations that are headquartered in the U.S. but have their manufacturing done abroad.
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