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It's time for markets to end their illusions about a US-China trade deal

2019-05-12 09:33:56       source:CNBC

May 11, 2019

Financial markets should abandon any remaining illusion that U.S.-China trade talks are a time-constrained, tradable event that ultimately will result in a deal reassuring investors. Near dead is the notion that both sides would inevitably compromise because they so badly need agreement for their own political and economic purposes.

What markets have misunderstood since the negotiations resumed last December – but U.S. and Chinese officials have grasped – is that the talks had become just one of many events of a new era of geopolitical and systemic competition that will define our times. To earn their pay, market analysts will have to get a lot better at pricing in geopolitical risk.

Trump’s decision to more than double tariffs on $200 billion in Chinese goods, from 10% to 25%, received the most global attention this week. His move, which was fueled by the argument that China was backing out of already-negotiated terms of a draft agreement, has the potential to be the most significant of the many trade moves of his administration.

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