Ask CIO: Can China ride the trade-war storm?


The key issue is no longer trade, but global strategic and technological dominance
Chief Investment Office10 May 2019
Photo credit: AFP Photo


US raised tariffs on USD200b of Chinese goods; China vowed retaliation. The calm in financial markets did not last, after all. For months, investors have been pricing in an eventual resolution to the ongoing trade spate between the US and China, but awakened only to the crude reality that the chance of a resolution remains elusive.

Trade tension no longer about “trade”; the “tug-of-war” environment set to stay. The Chicago Board Option Exchange Volatility Index (VIX) has spiked 48% this week (ending 10 May) – a timely reminder that volatility is set to stay. There are no winners should this trade spat persist. This is evident from recent macro data, which saw global trade volume plunging 1.4% y/y in December 2018, and US exports to China falling 18.8% in 1Q19.

In any case, should the US and China manage to reach a trade resolution, calm will resume in financial markets. But this will likely be transitory given the key issue here is no longer trade, but global strategic and technological dominance.

Such things will not be resolved overnight and undercurrents will continue to linger in the foreseeable future.


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