Trump, Xi Call Tariff Truce - Wealth Managers' Reactions

Editorial Staff

4 December 2018

Equity markets rallied on news that President Donald Trump and Chinese President Xi Jinping had agreed to a 90-day delay in tariffs that the White House had planned to impose on Chinese exports at the start of 2019. While the threat of rising protectionism hasn’t gone away, and has been a nagging worry for investors for the past year, the move at the Group of 20 summit at the weekend gave wealth managers something to cheer about.

After the news came out a number of wealth managers reacted. Here’s a selection.

Aninda Mitra, senior sovereign analyst at
The big news from the Trump-Xi dinner is that higher tariff rates as well as a broadening of the base of tariffable goods are going to be suspended for at least 90 days. More details are still awaited. But I would see this is as a short-term risk positive development and safe havens should underperform in coming days. The markets will be elated. However, I would look out for the details and keep an eye on the 90 day+ horizon.

To be sure, underlying problems remain unresolved. It is not as though existing tariffs are on the verge of being unwound. But what Xi has managed to extract from Trump is a stay on any escalation for three months. That interlude should see a stronger effort to set a framework for more talks and quid-pro quos.

However, I remain mindful of the broadening bi-partisan scepticism on the US end about its worsening relationship with China. The Chinese views are also coalescing around the notion that the US will simply not tolerate another nation to rise, to the extent where US hegemony in Asia can be seriously challenged. The three-month extension must therefore be seen in the context of the “promise fatigue” of the US authorities and Chinese wariness about eventual conflict (if not outright hostility) becoming inevitable.

Raymond Ma, portfolio manager,
While President Trump described the bilateral meeting with China as "amazing and productive," we believe the rivalry between the US and China will not be easily overcome, especially over the issue of intellectual property and market access. A breakdown of talks will remain a risk for markets and the global economy. US trade relations with other partners also remain tense, and we will continue to monitor the White House threat to impose additional tariffs on car imports, which would represent a significant headwind for the large German and Japanese auto sectors.

However, the delay in the tariff rate increase is a positive development relative to our base case and the meeting managed to avert a significant escalation that could have deepened the recent sell-off in global equities. A negative outcome could have included the swift imposition of a third round of US tariffs on an additional $267bn worth of Chinese goods. This further round of tariffs would have targeted China's higher value-added IT products and inflicted greater disruption on global supply chains.

The outcome of the G20 meeting supports our moderate risk-on stance. We added to our overweight in global equities after November's US mid-term election on the view that markets had adjusted to better reflect concerns over slower economic growth and the escalation of the trade conflict. In the past week we have learned that both the Trump administration and the Federal Reserve are not dogmatically pursuing policies without regard to the market and economic impact. We remain overweight global equities and US-dollar denominated emerging market sovereign bonds. Yet we also continue to expect heightened volatility around policy and economic news. As a result, our equity overweight is balanced with counter-cyclical positions – including an overweight to 10-year US Treasuries and the Japanese yen versus the Taiwanese dollar.