President Donald Trump and Chinese President Xi Jinping made their New Year’s resolution early. In December, they agreed to stop trading tariffs for a few months. The first test of that promise for investors comes in the week ahead.
An American delegation is expected be in Beijing to resume the tense trade negotiations that so far have resulted in billions of dollars of taxes, slowed economic growth, and shaken investors’ appetites. The two sides face a March 1 deadline; the U.S. has promised to hike its import tax from 10 percent to 25 percent on $200 billion of Chinese products if no deal is reached. There’s little doubt China would retaliate by hiking the cost American exports.
The risks to both economies have intensified since the last round of tit-for-tat tariffs in September. The latest evidence of China’s weakening economy came from Apple. The company cut its quarterly sales projection, specifically citing slower business in China. Apple CEO Tim Cook warned investors, “We believe the economic environment in China has been further impacted by rising trade tensions with the United States.”
China’s economy is slowing. Auto sales have dropped for the first time since 1990. Output at Chinese factories shrank in December for the first time in two years. And the Shanghai composite stock index fell 25 percent last year.
In the U.S., the persistent rhetoric and reality of trade troubles with China (and other countries) has taken its toll. The S&P 500 stock index suffered its worst annual loss last year in a decade. American exports to China fell almost 30 percent in October compared to a year earlier. November data were due out in the week ahead, but they have fallen victim to the government shutdown.
Beyond iPhones designed in California, engines made in Ohio or soybeans grown in Iowa, the trade issue the U.S. is pursuing is the protection of American technology in China. “Technology is the most important advantage that Americans have economically,” U.S. Trade Representative Robert Lighthizer told CBS’s “Face the Nation” in December.
Working to protect that advantage has come at the cost of investor confidence.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView.