Xi and Trump likely to agree on the principles for the resumption of trade talks at G20 summit - Standard Chartered

Standard Chartered's analysts note that their clients see the G20 summit on 28-29 June as a pivotal event that may determine the intensity of US-China trade tensions and the ensuing policy responses.

• “In the run-up to the summit in Osaka, President Trump continues to exert pressure on China on trade and other issues, while President Xi is preparing the nation for an extended trade war.
• We are convinced that a meeting between the two leaders is in the making. Trump has expressed a strong desire to meet Xi at the summit. While China has yet to confirm the meeting, we do not think it will waste an opportunity to demonstrate its commitment to averting a trade war that could disrupt global economic growth.
• Xi and Trump will likely agree on the principles for the resumption of trade talks.
• We think the market may be too pessimistic about a trade deal within the next two to three months. The two sides appear to have reached an understanding on 90% of the issues after 11 rounds of talks; resolving the remaining issues will require more political will than time. Imposing additional US tariffs on all imports from China, which Trump has threatened in the absence of a deal, would likely take a big toll on the US economy in an election year.
• If the G20 summit fails to prevent an escalation of the trade war, we expect China’s government to deploy more fiscal stimulus, supplemented by credit expansion and a possible selective easing of property-market policies, to keep GDP growth above 6%. The authorities may also allow more FX flexibility, partly due to shifting fundamentals.”