According to analysts at Danske Bank, with Trump threatening new tariffs on all of US imports from China over the weekend, it is a huge turn of events that adds renewed uncertainty to the outcome of the trade talks.
“It may be that it is just a bluff and an attempt to squeeze out more of China, but bullying rarely works on China and Trump’s threat could backfire.”
“China may very well decide to skip talks this week, which could be the start of a new escalation of the trade war that would give a big hit to risk sentiment and could derail the brewing signs of recovery in the global economy.”
“However, with Trump going into the election campaign, we still do not think he would risk a no-deal outcome that would most likely derail the stock market rally and cause a dive in economic sentiment. Our baseline is therefore still a deal by the end of Q2, but uncertainty has clearly gone up.”
“On Sunday night, the US-China trade talks took a dramatic shift for the worse as Trump tweeted that he is going to raise tariffs on USD200bn of imports from China from 10% to 25%. He also said that another USD325bn of Chinese goods will be tariffed ‘shortly’. This is a huge turn of events as only yesterday Trump was saying trade talks were going “very well” and his Treasury Secretary Stephen Mnuchin last week said the talks in Beijing had been “productive”.”
“On Friday, we put a 75% probability on a trade deal this week. That is clearly too high now, and we are back in unchartered territory.”