Is the U.S. in a Trade War or a Tech War with China?
Negotiations with China continue to center around market access, intellectual property protection and technology transfer requirements.
To read the full article from Washington Policy Analyst Ed Mills, see the Investment Strategy Quarterly publication linked below.
Trade tensions between the United States and China have been a hallmark of President Trump’s presidency and a major market overhang that threatens to initiate a decoupling of the world’s largest economies, disrupting supply chains and potentially hitting company earnings in the process. It has been over two years since an initial face-to-face meeting between President Trump and China’s President Xi at Mar-a-Lago, at which time a 100-day plan to address broad economic concerns was put into action.
Initial optimism in early 2017 quickly faded as the two sides could not come to an agreement on key market access, intellectual property protection, and technology transfer requirements that remain at the center of talks. The back-and-forth nature of these negotiations is tied to a reality that is gaining greater appreciation: the talks are less about overall trade imbalances and more about safeguarding future U.S. economic, technological, and military interests. In short, we believe the Trump administration views this as a battle for supremacy.
- U.S./China trade tensions have been a hallmark of President Trump’s time in office and a major market overhang that threatens to initiate a decoupling of the world’s largest economies, disrupting supply chains, and potentially hitting company earnings in the process.
- China hardliners in the Trump administration view competition in the tech space as the new ideological frontier to determine the values of the emerging tech landscape – a modern day “Cold War” scenario.
- The China trade fight is arguably the most popular policy position of the Trump presidency. We believe one of the biggest threats to President Trump’s reelection would be a market sell-off or weakening economy. Either could cause the president to soften his stance toward China, but that is not a given and could embolden China to hold out.
- Politically, securing a deal in the short term presents advantages for both sides, but opportunity for miscalculation is heightened in the long term. Reaching a deal would provide a market boost in the U.S. and would play well for China’s Xi for preserving (for the time being) the relationship with China’s largest market.
All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance that any forecasts will be realized.