Predicting Trump and Xi a mug’s game
The US was set to raise tariffs on $200bn of Chinese goods, as GlobalCapital went to press, after talks between the two economic powers appeared to break down. Few people predicted it, most having prematurely stopped worrying about the US-China trade war and its impact on markets.
Investors perhaps complacently expected the two sides to build on the preliminary agreement reached last year. The sudden change in tone meant equity indices had their worst week in months.
China reportedly attempted wide-ranging revisions to the agreement on May 3, which prompted Trump to tweet that China “broke the deal”, and the possibility of trade war re-emerged.
The US and China could yet agree a deal but, if they don’t, another round of tariffs will be introduced, global supply chains will be further disrupted and equities will fall again.
Trump seems to change his mind with the wind and yet is able to move markets with a single tweet. What he decides next is anyone's guess.
With a presidential election just a year away Trump might think a trade war, and the resulting market volatility, is a price worth paying for votes. He might also think a trade deal and a stock rally are the best way to keep the keys to the White House. Yet if he does not know himself which way to act, what hope any investor?
China, moreover, is just as stubborn in this contest.
Anyone who makes money out what Trump or Xi does next will have to recognise the part luck played in their success.