AMP Capital chief economist Shane Oliver said that while US President Trump has agreed to resume trade talks with China and would not be adding further tariffs to Chinese imports, it is still unclear whether China and the US are closer to resolving the trade war.
“It is understandable if investors are a bit sceptical about developments in Japan because this is the third truce. China and the US agreed to a truce around May last year, then tariffs started up again,” Mr Oliver explained.
“In December last year, they struck another truce at the G20 summit in Argentina, with new tariffs halted for 90 days. But talks broke down in May, with Trump accusing the Chinese of backsliding on commitments. Trump ramped up US tariffs again, triggering a Chinese response.”
Mr Oliver said it was vital for the global economy and financial markets that the two presidents resolve this issue, with the trade war already dampening business investment in the US and threatening business investment globally.
“Since around June last year when the trade war really started to escalate, we have seen quite a significant fall in business conditions and business confidence worldwide,” he said.
“Tariffs and trade barriers are disrupting global supply chains. Businesses are becoming uncertain about where they can locate their factories, who they can trade with and who will be disrupted. That’s caused a lot of consternation.”
If the trade war isn’t resolved, the global economy may slow further, he cautioned.
“It will also put a question mark over President Trump’s re-election prospects at next year’s presidential election,” he said.
“A trade war could see unemployment rise and increase the risk of a recession, and could damage Trump’s re-election chances.”
While it is likely that they will resolve the issue, it may take a while for this to happen, he said.
“Investors, therefore, should brace for the trade war to potentially trigger more volatility in share markets and investment markets generally,” he said.
