In our opinion, we should dismiss the idea that talks could breakdown, albeit uncertainties remain. On one side, in order to reach an agreement China wants the U.S. to remove all extra tariffs, set targets for Chinese purchases of goods in line with real demand, and ensure that the text of the deal is “balanced” to ensure the “dignity” of both nations.

Controversially, we are actually closer to a deal more than a few months ago, from the perspective that both sides have made concrete efforts at middle- and low-levels, with day and night works towards details and wording. In other words, we are entering the final stage but probably the most difficult part, as the remaining issues are critical and tough decisions.

Higher tariffs will hurt everyone, Chinese exporters as well as US consumers. However, based on different degrees of policy interventions, the impact on global growth and trade should be contained to a certain extent, while we do not expect an outright recessionary scenario either in China or in the U.S. Unlike from what happened in 2018, the authorities in China are now better equipped to offset the external shock and local sentiment looks less fragile; on the other side the Federal Reserve stance is more accommodative than it was last year. The countries more integrated with China in the production chain will suffer the most, while exporting countries that compete with China can benefit from increasing their exports share to the U.S. and from production relocation of certain manufacturing sectors.