Movers and SHAKERS
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On Saturday, June 29th, the United States and China agreed to restart trade talks after the Trump administration offered not to induce new tariffs and ease restriction on the Chinese tech giant, Huawei, reducing ongoing tensions. U.S. stocks rose on Monday after President Trumps meeting with China’s President Xi at the G-20 in Japan, where the Trump administration willingness for cooperation and communication helped reduce the ongoing fear of a bolstered trade war. President Trump will maintain current tariffs on Chinese goods but will not implement any new tariffs which could harm consumer purchasing in the United States. The United States will allow certain companies to sell technological products to Huawei if there is no risk to national security.
Good News for Consumers: From an economic standpoint the trade truce is positive for U.S. consumers as they will not have to pay a higher price for Chinese goods due to an increase in tariffs. At the G20, The Trump administration pledged to not implement any new tariffs on Chinese goods reducing the fear of an all-out trade war.
Agricultural Purchases: The Trump administration had released on Saturday, that Beijing will resume purchasing U.S. agricultural and farm goods, that it had recently cut back on due to tariffs. President Trump was quoted saying, “China is going to be buying a tremendous amount of food and agricultural product and they’re going to start that very soon, almost immediately.”
U.S. Stocks rally to all-time highs: After news of newly restarted trade talks between the U.S. and China, the S&P 500 surged to an all-time high surpassing its intraday record and gains were the best of June since 1955, increasing by 1.1% or 34-points. At initial trading, the U.S. technology-based NASDAQ index jumped up by 1.7%. There was also a 1%, or 264-point increase in the Dow Jones industrial average.
Technology Sector: The Trump administration will grant some United States technology companies’ greater freedom when selling their produced goods to the Chinese telecom giant, Huawei, as long as those products sold will not present a national security risk
Cyber Security Threat: The Trump administration lifted a ban on United States companies selling technology products to the Chinese telecom firm, Huawei. The U.S. government has alleged Huawei of posing a threat to cyber-security and conducting Chinese surveillance. Huawei has been accused of implementing back doors in its routers and other technology that would allow access into U.S. communications.
Previous Failed Discussions: The Trump Administration and China had previously worked toward a trade deal last month which had fallen apart. Escalating tensions had led on the trade war had led to an increase on tariffs from 10% to 25% on imports worth $200 billions, and a threat of a 25% tariff on an additional $300 billion of Chinese goods. China raised levies on U.S. imports in retaliation to the increased tariffs.
Negative Consumer Impact: The Trumps administrations threat to impose tariffs on nearly all Chinese imports would severely impact the U.S. consumer by raising the cost of a wide arrange products. United States companies in industries such as toy making, shoe making, and telecom worried that the tariffs would cause disruption in supply chain and would lead to layoffs for employees. Around 85% of consumer purchased toys in the U.S. are produced in China, and the cost of these toys could increase by up to 25% depending on the implementation of tariffs.
Future Doubt: The surge in financial markets could be dampened by an interest rate cut by the Federal Reserve in July. Fed chairman Jerome Powell had stated that policymakers were ready to intervene if there were not improvements in economic developments.
No fundamental breakthrough: The conversation between the Trump Administration and China did not lead to any fundamental resolution between the two administrations, leaving uncertainty pertaining to future trade conflicts and tariffs. The temporary cease-fire showed promise of future negotiation with President Xi stating, “Cooperation is the best choice for both sides. I would like to take advantage of the opportunity tonight to exchange views with the president on issues of common concern and plan for the next phase of Sino-US relations.” The long-standing tariffs have provided a secondary solution which the U.S. hopes the further resolve through greater economic policy change.
https://qz.com/1655665/what-the-us-china-trade-truce-means-for-the-markets/ , Eshe Nelson, June 29, 2019
https://uk.reuters.com/article/us-g20-summit-trade/back-on-track-china-and-u-s-agree-to-restart-trade-talks-idUKKCN1TT373, Roberta Rampton, Michael Martina, June 28, 2019
https://finance.yahoo.com/news/yuan-climbs-dollar-dips-trade-212127628.html, Vildana Hajric, Jeremy Herron, July 1, 2019
https://www.theguardian.com/business/live/2019/jul/01/stock-markets-surge-us-china-trade-manufacturing-uk-eurozone-business-live?page=with:block-5d199d1e8f080e8285152262#block-5d199d1e8f080e8285152262, Graeme Wearden, Mon 1 Jul 2019
https://www.nytimes.com/2019/06/17/business/businesses-china-tariffs.html?module=inline#, Ana Swanson, June 17, 2019
https://www.nytimes.com/2019/06/29/world/asia/g20-trump-xi-trade-talks.html, Peter Baker and Keith Bradsher, June 29, 2019
https://www.nytimes.com/2019/06/29/business/us-china-trump-trade-truce.html, Keith Bradsher, June 29, 2019