Monday, May 13, 2019

Assessing the trade stalemate scenario

I wrote yesterday (see Why investors should look through trade tensions):
Calculated in economic terms, China would “lose” a trade war, but when calculated in political cost, America would lose as Trump does not have the same pain threshold as Xi.
Based on that analysis, I concluded that it was in the interests of both sides to conclude a trade deal, or at least a truce, before the pain became too great. In addition, the shallow nature of last week's downdraft led me to believe that the market consensus was the latest trade impasse is temporary, and an agreement would be forthcoming in the near future.

I then conducted an informal and unscientific Twitter poll on the weekend, and the results astonished me. The poll was done on Saturday and Sunday, and a clear majority believes that it will take 10+ months to conclude a US-China trade deal, or it will never be done.

In view of this poll result, it is time to explore the stalemate scenario. What might happen if negotiations became drawn out, or if the trade war escalates?

The full post can be found here.

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