One new element going into the upcoming negotiations is Trump’s impeachment troubles in the House of Representatives. JPMorgan analysts noted that those could have a bearing:
“Trump may experience an epiphany that inclines him to accept a weak offer from mainland China to end the trade war,” John Normand, JPMorgan’s head of cross-asset strategy, wrote on Friday. “But the adverse scenario is also credible: realizing Trump’s vulnerability, China may slow-walk negotiations and even court another tariff hike, on the expectation that another year of mutual stress might raise the odds that Trump loses the 2020 elections.”
JPMorgan’s base case is for talks to drag into next year. And the bank sees the yuan sliding by year-end to 7.35 per dollar, the weakest since 2007.
Bank of America Merrill Lynch is even more bearish on China’s currency, seeing it tumbling to 7.50.
“Cautious optimism is building that a narrow deal can be achieved” in the upcoming talks, Claudio Piron, a Bank of America strategist in Singapore, wrote in a recent note. But even if there is a truce, the yuan may still slide, he argued -- with China likely to ease monetary policy and try to offset existing tariffs through depreciation.
Goldman isn’t quite so bearish on the yuan, keeping its near-term target at 7.20, compared with 7.1375 in Shanghai trading Monday.
But Goldman’s economists offer some sobering broader context for major American trade disputes over history.
“In most instances, tariffs remained in place for several years, with a median duration of three-to-four years in our sample of major postwar disputes,” analysts including Alec Phillips wrote on Friday. “The more complicated conflicts saw periodic detentes and in some cases remain unresolved years or decades later.”
This story provided by Bloomberg News.