WWRR Vol.2.015

Thursday, 29 November 2018 Page 1
For important disclosures please refer to page 9.
Christopher Wood christopher.wood@clsa.com +852 2600 8516
The prospects for a truce
New York
The focus of investors in meetings in North America this week has, unsurprisingly, been on the
outcome of the G20 Summit in Buenos Aires this weekend with regard to a possible US-Sino deal on
trade. Normally GREED & fear would view G20 summits as ineffectual talking shops. But this time is
different since the presumed meeting between Donald Trump and Xi Jinping allows for some
possibility of a defusing of tensions.
GREED & fear remains more hopeful than the consensus that some kind of interim deal, or
agreement, can be negotiated that at least reduces the likelihood of implementation of the next
round of tariff increases from 1 January when tariffs on US$200bn of imports from China are
scheduled to increase from the current 10% to 25%. The Donald has also threatened to impose 10-
25% tariffs on the remaining US$267bn of imports from China if a deal is not agreed. This is
important because, if this view is wrong and the tariff increases go ahead, then the risk rises of more
aggressive retaliation from the Chinese side. For example, Beijing could send the signal to Chinese
consumers to stop buying American goods, just as it did in the case of South Korean goods when the
THAAD missile defence system was installed in South Korea in March 2017.
Figure 1
US tariffs on imports from China
600
500
(US$bn)
10% or 25%
10%
400
25%
267
300
200
100
200
250 250
34 50 50
0
6-Jul-18 23-Aug-18 24-Sep-18 1-Jan-19 (?) ???
Source: Office of the United States Trade Representative
Clearly, such retaliation leads to a negative dynamic that ultimately benefits no one. But equally
clearly Beijing cannot for face reasons sit by and take no retaliatory action if the Trump
administration follows through on its threats in January. Still this is to assume the worst, whereas
the signals in recent weeks point to some kind of deal or at least truce at the G20 Summit.
First, Donald Trump signalled in his tweet on 1 November that he was looking forward to meeting Xi
at the G20 and had a telephone call with him where North Korea was discussed. As discussed here
at that time (see GREED & fear – South Asia focus, 8 November 2018), this tweet was significant since
the markets at that juncture had all but given up hope for a trade deal. Second, that North Korea
was discussed is also important because GREED & fear continues to believe that Trump wants to do a
deal on North Korea, and he probably needs Beijing’s help to achieve that goal. Both Trump and Xi