The trade dispute between the two largest economies continues to deteriorate and this is not a surprise to us. It has been very clear that the current US administration is unlikely to make a deal with the China. The gap is too wide between the two countries so it is hard to envision a deal coming together. It seems to be getting worse and we don't expect a deal anytime soon. Back in our January conference call for clients, we pointed to VP Pence's speech from October 2018 at the Hudson Institute. If you want to understand the big issues, this is a must watch.
Here are our thoughts from back in January 2019. Our view hasn't changed. This is very negative for global trade as companies can't plan properly when the rules of the game are uncertain. With the Presidential election coming up in 2020, the Chinese may just wait and see if they have a new administration to deal with in 2021.
It is unusual for us to draw on the Daily Show for analysis but Trevor Noah nails the root cause of the trade dispute in this segment talking about 5G technology. When China was simply an outsourced manufacturing arm for American corporations, all was considered good. However, now that China is innovating in the technology sector, this is a big issue that isn't likely to be resolved in the near term. We believe that China has some significant advantages in artificial intelligence (like more data and citizens' willingness to sacrifice their data privacy) and government supporting dollars behind it.