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US-China trade row may fester until 2020 presidential elections

2018-12-5

STANDARD Chartered Private Bank anticipates the trade row between China and the US will remain unresolved until the US presidential elections in 2020, although, the current trade tensions could enter "a temporary hiatus" in the coming months, reported CNBC.

The reason being, according to chief investment strategist Steve Brice, is Washington's decision to resolve tensions with Beijing will likely be motivated by politics since US President Donald Trump will be running in the elections for a second term at the White House.


"I think it's going to be a political decision: Does it actually bode well for the US having solved, in Trump terminology, the China trade issue today? One could argue that actually he'd be better doing that six months before the elections so he's got the tailwind going into his re-election bid," Mr Brice told CNBC's "Street Signs."


Two recent surveys in the US showed that Americans like the president's handling of the economy but that has failed to boost his overall approval rating. Those trends signal potential trouble for Mr Trump's re-election bid if the economy slows down.


The presidents of the US and China are expected to discuss trade at the upcoming G20 summit in Argentina, although, many experts have said they don't see any major progress from that meeting.


"You might see a temporary hiatus, but then when you get closer to the presidential elections, then this flares back up and then we'll see tensions rising again," said Mr Brice.


Worries about the US-China tariff fight have contributed to heightened volatility in global markets, with investors adjusting their positions in anticipation of the forecast slowdown in economic growth and company earnings next year.


Mr Brice explained that growth in corporate earnings are expected to slow significantly in 2019, but would remain slightly above the historical long-term average - which is "still relatively healthy". Inflation in the US is also not likely to surge quickly and, coupled with weaker economic growth, the Federal Reserve may raise interest rates at a slower pace next year, he said.


Mr Brice predicts the US central bank will raise rates three more times - once in December and twice in early 2019 - before taking a pause.

 
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