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Rabobank analysts point out that the German Chancellor Merkel visiting Beijing with German CEOs to talk trade.

Key Quotes

“The timing could not be better given ongoing global protectionism and as both Germany and China profess to love the global free-trade system, but as massive net exporters and not net importers, which is what we are going to be desperately short of globally if the US either falls into recession or continues to raise tariffs.”

“From the German perspective, Merkel will be looking to boost German access to China’s vast market, most so with recession looming and Trump still threatening action on the US-German trade deficit.”

“On the other hand, as Bloomberg notes today, the German attitude towards China has shifted beneath the surface and is now more cautious, even seeing the country as a “strategic competitor”, talking of screening FDI, and worrying about splits in the EU vis-à-vis China. On the other side, Chairman Xi absolutely needs to ensure that he maintains a large trade surplus to keep his current account in the black and hence relieve building pressure on CNY: that comes mainly from the US and the EU, which does not bode so well for these talks. If they go badly, recent happy sentiment might well evaporate.”

“However, that overlooks the fact that China will also be looking to play off the EU against the US on trade – just as Merkel will be looking to play off China against the US. As such, something positive might emerge from the headlines.”

“Yet consider this. If Germany, which has not confronted China over its trade practices, genuinely sees increased access, what do you think the reaction from the US will be? Trump fury, most likely. Likewise, might China try to persuade Germany to take a stance on the red-line of Huawei as part of a trade package? Almost certainly. And just as certainly, if Germany says “Huawei OK” there will massive geopolitical–and economic–consequences for EU-US relations.”