Comment on the US-China trade war truce

Randeep Somel, director of global equities at M&G

“What looked like an escalating trade battle between the two largest economies in the world with no end in sight has seen the first positive overture occur at the G20 in Argentina. So far we only have confirmation that a 90-day truce will take place so both sides can talk before any new tariffs are added. However, it is a positive development as all rhetoric so far has been towards continued escalation. We also have President Trump’s tweet, though the Chinese have neither denied nor confirmed the news, but if true, the Chinese will “reduce and remove” the 40% tariffs on US car imports and the US will freeze levies on $200bn of Chinese goods at 10%.

“The November midterms where Donald Trump and the Republican party held control and increased seats in the US senate would have shown the Chinese government that the American population broadly supports President Trump’s firm trade negotiations with China. The key to any negotiation is negotiating from a position of strength. While the US economy and employment are very strong, the Chinese government has seen their growth slow as they try to manage the amount of debt in their economy.

“The rally seen this morning in equity markets show that the escalating trade disputes are a significant concern to the global growth outlook of the world economy.

Whilst its very early days and the process of normalising the trading relationship with China is going to be a complex process – today, at the very least is a signal that those negotiations can begin.

“Riskier assets such as base metals and oil producers, as well as the US and European car manufacturers and associated supply chains are likely to show the most positive reflection of the news as they have borne the brunt of the negative headlines for most of this year.”