Seems like the tension between China and the United States will not be over any time soon. With the very fragile and shaky agreement concluded earlier between the two countries, it is hard to move any further.
However, there is some progress as China decided to cut tariffs on soy and pork coming from the U.S. CIO of KraneShares in New York, Brendan Ahern, stated:
“The olive branch gesture should help continue talks.”
China still tries to convince the United States to remove the existing export tariffs as a condition to a phase one trade deal. But Washington doesn’t seem to be eager to do so and tries to make China as costly to do business in as possible. By stopping hiring blue-collar manufacturers from China, the USA forced China to think about other ways to employ its low-skilled labor force that is not able to work in Alibaba IT sector, for instance.
China has always been known as a manufacturing hub and, therefore, it is so tough to compete with it. No other country, including the United States or Brazil, has such weak labor laws and low taxes. China also has a great number of free trade zones and hosts six world’s largest container ports.
Therefore, diversification out of China became the main goal for the USA. And to do so, the American government is trying to make doing business in China more expensive and unattractive.
At the same time, Chinese equities are now thriving: Deutsche X-Trackers China A-Shares (ASHR) ETF has risen by 1%. Foreing inflows have started to come into the economy of China ever since the trade war began.
But China still need the tariffs to be removed as manufacturers started to gradually leave the mainland. According to the recent updates, many middle-market American companies now prefer to shift their supply chain to other parts of Asia avoiding China. The main reason is the high level of uncertainty associated with Chinese economy and business environment nowadays.
Meanwhile, seems like the trade war is not affecting America that much after all. Chief investment strategist for Brown Brothers Harriman in New York, Scott Clemons, commented the current employment situation in the United States saying:
“Nothing here is signaling an economic slowdown. Wages have grown around 3% since the summer of 2018, putting plenty of money in consumers’ pockets. There’s no evidence of an economic hit from trade and tariff uncertainty.”
Moreover, CNBC host and fund manager is convinced that the United States should not agree to a truce or a tie in this trade war:
“We should want to win it. These are the best jobs numbers I’ve ever seen in my life. The president can walk away from the table with this number. In the end, the Chinese are going to have to put jobs here.”