China Trade Talks Push US Stocks to Record Highs Before Bringing Them Down
Negotiations between Washington and Beijing send the US stock market soaring one day and falling the next. On Nov. 15, the Dow Jones Industrial Average peaked at 28,000, it’s highest point ever, amid positive news on the on-going discussions. This week was a different story, however, as news broke that the trade deal could be delayed until next year causing the stock market to back down. Further complicating matters, the US Congress passed a near-unanimous bill in support of Hong Kong protestors.
After Chinese Vice Premier Liu He held a phone call with US Treasury Secretary Steven Mnuchin in Washington Nov. 15, both sides expressed optimism in the talks.
“We’re getting close,” said Larry Kudlow, White House economic advisor. “The mood music is pretty good, and that has not always been so in these things.”
The discussions followed an October truce whereby both states agreed not to levy more tariffs while a “phase one” deal is ironed out. The Chinese Ministry of Commerce said “constructive discussions” took place during the phone call, but a final agreement is unlikely to be signed before a critical Dec. 15 deadline which would see a new round of US tariffs imposed on consumer goods such as smartphones and laptops.
Both sides are finding difficulty agreeing on several issues. For the US, intellectual property protection. The forced transfer of technology is another key point Washington would like Beijing to concede on.
For China, current tariffs are the issue. In the days leading up to the phone call between officials from both states, China declared that tariffs should be cancelled before a deal is reached.
After US stocks peaked Nov. 15, they slid the following week, ending six weeks of gains. Technology stocks were the hardest hit – Advanced Micro Devices fell 3.6 percent and Lam research 3.5 percent. Oil also posted a loss with Brent crude futures LCOc1 down 0.5 percent and Texas Intermediate crude CLc1 falling 0.6 percent.
Another element to the US-China trade war is Hong Kong protests. Until this week, the US government has refrained from taking official action on the civil unrest in Hong Kong, perhaps out of fear of retaliation by Beijing or disruption to the trade talks. After legislation designed to safeguard human rights in Hong Kong passed both the US House of Representatives and Senate, Beijing issued a heavy condemnation.
“The Hong Kong Human Rights and Democracy Act interferes in China’s domestic affairs,” said Geng Shuang, Chinese Foreign Ministry spokesman. Shuang emphasized that the protests are considered internal affairs and the US should hold back from meddling.
A government spokesman went a step further and said the legislation “will also harm the relations and common interests between Hong Kong and the US.”
US President Donald Trump has given no indication whether he will sign the bill, which would be the final step toward making it law. The act would force Washington to confirm that Hong Kong’s trade and export controls are managed separately from mainland China on an annual basis. Furthermore, it would authorize the US government to sanction Hong Kong officials accused of human rights violations.
A prolonged trade war could have an impact beyond China and the US. At the East Tech West conference in Guangzhou, China, Ben Harburg, managing partner of Beijing-based MSA Capital, argued the trade war could expedite China’s push into Africa and the Middle East.
“China (has) an e-commerce penetration rate of around 30%. In the Middle East today it’s 2%,” said Harburg. “(It’s) hugely attractive to walk millions of people online and find them a place in e-commerce that’s mobile-first.”
Harburg’s firm recently partnered with Al Salam Bank to create a $50 million fund for Chinese business expansion into the Middle East. By being forced from a solid business alliance with the US, Beijing has looked elsewhere for opportunities. US businesses have largely neglected the Middle East and Africa, leaving the door open for China.