LONDON, Dec. 21, 2018 /PRNewswire/ --
Last week Jumana Saleheen, Chief Economist at CRU, visited the CRU offices in Beijing and Shanghai. The conversations she had and the observations she made gave her an insight into how the trade war is affecting China. Her sense is that the trade war is hurting prospects in China both through weakening export prospects but also by weighing on domestic confidence. China will do all it can to ensure stable economic growth in 2019 through policy stimulus; but fine-tuning policy to deliver stability is not easy and, as such, we expect activity in 2019 to be bumpy with economic growth of around 6%. Prospects for metals markets will depend on the type and mix of policy stimulus that is chosen.
Trade war – a worry for the many not the few
Everyone Jumana spoke to, regardless of age or profession, was worried about the trade war. They felt it was undoubtedly negative for China. There was a huge sense of relief that China and the US had agreed to a truce for the next 90 days. But the consensus view was that the trade war would continue, not just for the next few months but for coming years. Its path will be uncertain, dependent on a variety of factors and it will be dynamic.
The pessimist's view is that there will be little chance of a US-China deal during the designated 90-day window. That is because while China can certainly import more – cars or soybeans – from the US, the challenge will be gaining agreement on trade practices and the speed with which China will open up its market to foreign companies. These latter issues are difficult to agree at the best of times given differences in culture and expectations between countries, but are even more difficult under President Trump, and the absence of China allies in the US government at present. The US seem determined to ensure that China shows a clear intent regarding these issues, and that it do so quickly and by front loading it's offering to the US.
The 90-day agreement is no game changer
Our base case view is that tariffs will stay at or around current levels. In the strongman era Trump is seen to be marginally ahead, mainly because he is supported by the cyclical strength of the US economy. China was in that position in 2017 when its economy was relatively healthy, and it was able to push forward on its other objectives of a better environment, and financial market regulation to improve financial stability. Of course, the balance of power could shift again if the US economy took a turn for the worse. But we see that as a risk to our central view.
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