Following a positive tweet by President Donald Trump in regards to Chinese Premier Xi Jinping, the stock market rallied 350 points with renewed confidence.
Investors have been watching tensions unfold between the United States and China for the better part of the past two years, and have been cautious about investing until these issues have been resolved. The upcoming G20 Summit could be relief for many United States companies, but it could also go the other direction as well.
Let’s take a closer look at the tensions between the Trump Administration and Beijing, and examine what lies ahead.
Trump’s Threats Had Analysts Wary
Trump had stated that he would consider raising Chinese tariffs even higher if he was unable to meet with the Chinese Premier at the G20 Summit. However, this week Trump noted on Twitter that he had a positive phone conversation with the Premier, and that they would indeed be meeting at G20. This gave investors the go ahead that they needed to start investing in the market again.
The US-China trade war has informed many investment decisions over the past few months, with uncertainty ahead and many industries impacted. When new Chinese tariffs are announced, the stock market tends to take a dip. When positive news emerges, the stock market surges. Of course, this, in and of itself, has introduced a strong amount of volatility.
Of course, a meeting at G20 doesn’t ensure that the US-China trade war will be resolved. It only opens the doorway. But it does alleviate some of the stronger threats that have been initiated by the President.
Trump-Xi Meeting May Finally Resolve Trading Tensions
China and the US have been locked in a battle of wills, with both countries attempting to prove that the other economy needs them more. Both China and the United States have felt tremendous economic pressure, but it’s arguable as to which country has been harmed the most. China depends on the US to purchase much of its products, but the US depends on China for a great deal of its products and manufacturing.
A trade deal at this point could mean a light at the end of the tunnel for many companies, which are currently suffering under the weight of heavy tariffs and reduced Chinese purchasing.
The hope for many is that China and the United States will be able to come to some mutually beneficial terms, as the trade war is hurting both countries. If both countries agree to remove the trading restrictions that have been placed, the businesses within them will be able to go back to business as usual.
If the tariffs increase, consumers could eventually see virtually every good that they purchase going up in price. While companies have been absorbing these costs so far, they are not going to be able to do so indefinitely. At some point, the costs are going to need to be transferred on to the customer, and this could ultimately lead to a depressed economy.
The Federal Bank Eases Trading Concerns
The Trump-Xi meeting wasn’t the only reason for the positive stock surge. The Fed is expected to enter into a two-day meeting shortly, during which time they’ll discuss rates and rate cuts. While it isn’t expected that they will cut the rates during this meeting, it’s a possibility.
Investors are expecting at least a few federal rate cuts this year, to stimulate the economy and compensate for issues such as the current trading tensions. Rate cuts make money much cheaper, helping both businesses and individuals afford lending products.
Ultimately, the Dow remains extremely healthy, despite repeated assertions that the country is about to enter into a recession. Though the US-China trade war has damaged many industries, the country as a whole appears to remain financially strong, and many can see the economy growing.
The G20 Summit next week could go either way. If the Trump-Xi talks do poorly, the stock market is likely to feel the ripples immediately. At the same time, if the Trump-Xi talks do well, it’s likely that the stock market will soar.
Regards,
Ethan Warrick
Editor
Wealth Authority
