The market could be getting Xi’s speech wrong, it doesn’t mean there won’t be a trade war

merce last week proposed tariffs on $50 billion worth of imports from the other country.

In contrast, Xi said Beijing will increase imports, significantly lower tariffs on automobiles and increase enforcement on intellectual property protection. “In short, China will enter a new phase of opening up,” he said, according to a state-backed media translation.

U.S. stock index futures soared. The S&P 500 closed 1.67 percent higher Tuesday, and shares of Ford and General Motors climbed nearly 1.8 percent and nearly 3.3 percent, respectively. China is GM’s largest retail market.

“We interpret [Xi’s] tone as giving a strong sense of urgency relative to previous statements,” Goldman Sachs’ Beijing-based chief China economist Yu Song and a team of Hong Kong analysts said in a Tuesday report.

“If implemented swiftly and in full, we believe these moves will not only help alleviate trade tensions, potentially avoiding a full scale trade war, but will also improve China’s growth potential over the longer term,” the report said.

Other market analysts and traders generally cheered Xi’s speech in morning notes, but analysis from geopolitical research and consulting firm Eurasia Group took a far cooler view.

“Xi proposed actions which were previously promised and none address the reciprocity issues in U.S.-China relations,” Eurasia Group’s Managing Director Evan Medeiros and Asia Director Michael Hirson said in a note. “We assess that nothing in the speech will deter the U.S. from moving forward with tariffs.”

Reduced automobile tariffs “will not dramatically change the fortunes of U.S. car companies,” while “bland and generic commitments on IP protection fell short of what would have been a true gamechanger: an explicit announcement that China will address concerns over the Made in China 2025 initiative and other industrial policies,” the report said.

“Made in China 2025” is Beijing’s push for domestic companies to become leaders in high-tech industries such as robotics.

In a separate report Tuesday, Hirson said Beijing’s retaliation strategy focuses on exploiting divisions within the U.S., deterring U.S. allies “by occupying the moral high ground” and limiting “blowback to China’s own economy and strategic interests.”

Stocks have swung wildly in the last few weeks as traders worried about a trade war between the world’s two largest economies. But markets globally rallied following Xi’s speech, which did contrast with the defensive stance of China’s Ministry of Commerce on Friday. The German DAX gained 1.1 percent, the Shanghai composite rose more than 1.5 percent and the Nikkei 225 closed roughly half a percent higher.

U.S. President Donald Trump tweeted Tuesday afternoon that he is “very thankful” for Xi’s “kind words on tariffs and automobile barriers … also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”

Also Tuesday, the World Trade Organization said China filed a complaint challenging Trump’s tariffs on imported steel and aluminum. It said China has requested 60 days of consultations with the United States on the steel and aluminum dispute. If that fails, Beijing could request a ruling from a panel of trade experts, The Associated Press reported.

Kennedy, who is director of the Project on Chinese Business and Political Economy at CSIS, said the increasingly tense situation is largely due to the leaders of both countries and could be resolved.

But he expects that companies will end up having to re-envision China’s place in their global supply chains and no longer depend on a stable relationship between the world’s two largest economies. “This is a new normal for the relationship companies and investors need to adapt to.”
Source: Market Watch


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