The trade deal between the EU and the US has left the question of whether a similar positive development could be seen between the US and China. However, since Trump left the negotiating table at the end of May, there has been no sign of trade talks between the US and China. We do not see any deal between the two countries this side of the mid-term elections in November.
While Trump has very little backing in the US for a confrontation with the EU and other allies, he is under a lot of pressure to stick to a tough course with China.
We believe we are heading for further escalation, when Trump is likely to implement 10% tariffs on another USD200bn worth of Chinese goods in mid-October. It is set to trigger Chinese retaliation with similar force - followed by a Trump warning of even more tariffs.
The key challenge is that China has little more to offer than it has done already. While Trump's strategy seems to be that more pressure will make China give him a better deal. This is unlikely to happen, in our view. It leaves a very uncertain outlook for how far the 'tit-for-tat' trade war can go.
The US-China trade spat continues to move in ebbs and flows but unfortunately with a clear direction: towards worsening . For now, the tensions have moved to the background. However, they are likely to come back into focus when the hearings for US tariffs on another USD200bn worth of Chinese imports are over and the tariffs kick in. This is likely to be in mid-October, just ahead of the mid-term elections on 6 November.
Listening to comments from both US and Chinese politicians, it is hard to see how a deal will be struck . They are too far from each other on the real cause of the US-China trade deficit, what China can do about it and what China is doing on intellectual property rights. More importantly, though, the US demand that China dismantles it's 'Made in China 2025' strategy, which focuses on technology investments, is simply a no-go for China.
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