China, US have no other choice than to reach agreement about trade issues - Saxo Bank
Baku, Azerbaijan, March 29
By Anvar Mammadov - Trend:
China and the United States have no other choice than to reach an agreement about trade/IPRs issues, Saxo Bank experts believe.
Since Donald Trump has first announced the steel and aluminum tariffs on March 1st, the market has been in risk aversion mode, Saxo Bank told Trend.
"The Geopolitical Risk Index (GPR) is at its highest monthly level in March since the Iraq war in 2003, currently at 286. Investors have favored safe heavens, such as gold, at the expense of equity markets. Stock markets being the most exposed to international trade, such as the Japanese Nikkei, have fallen sharply," the Bank said.
However, in the longer run, the risk of a real trade war between the USA and China is difficult to predict and to price, according to Saxo Bank experts.
"With all the necessary caution due to the fact that Trump is totally unpredictable, we believe that this scenario is very unlikely right now. There is little doubt that Trump seems to believe that surplus states has the most to lose in a trade war but we can assume he is pragmatic enough to avoid a frontal confrontation with Beijing. Whether he likes it or not, he needs China to finance US debt and support the dialogue process with North Korea. So far, protectionist measures have been largely smoke and mirrors. They mostly aim to please US business by adopting an aggressive tone against China’s IPR infringement without taking any measures likely to provoke the wrath of Beijing," the Bank said.
For its part, China has no interest in a trade war, according to the bank.
"President Xi has just consolidated power and has to cope with domestic economic reset. It is highly unlikely that he would seek to blow up financial markets with war on US dollar or T-bonds right now. Actually, the smartest retaliation for China would be to decide asymmetric strikes at core US business such as GM or Boeing. For example, it would be much easier and as effective for China to send hygiene inspectors to factories essential for the US production chain and, for whatever reason, to shut down the plan for a couple of weeks or longer. To sum up, China and the United States have no other choice than to reach an agreement about trade/IPRs issues," the Bank said.