• 483 days Will The ECB Continue To Hike Rates?
  • 483 days Forbes: Aramco Remains Largest Company In The Middle East
  • 485 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 885 days Could Crypto Overtake Traditional Investment?
  • 889 days Americans Still Quitting Jobs At Record Pace
  • 891 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 894 days Is The Dollar Too Strong?
  • 895 days Big Tech Disappoints Investors on Earnings Calls
  • 896 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 897 days China Is Quietly Trying To Distance Itself From Russia
  • 898 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 902 days Crypto Investors Won Big In 2021
  • 902 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 903 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 905 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 905 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 909 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 909 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 910 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 912 days Are NFTs About To Take Over Gaming?
Ocean Power: The Missing Link

Ocean Power: The Missing Link

Wave energy has the potential…

The “Great Car Comeback” Brightens Oil Demand Outlook

The “Great Car Comeback” Brightens Oil Demand Outlook

Despite high vaccination rates in…

Who Will Pay For The $40 Trillion Energy Transition?

Who Will Pay For The $40 Trillion Energy Transition?

All the pledges from government…

Oilprice.com

Oilprice.com

Writer, OilPrice.com

Information/Articles and Prices on a wide range of commodities: We have assembled a team of experienced writers to provide you with information on Crude Oil,…

Contact Author

  1. Home
  2. Commodities
  3. Energy

How The Trade War Ceasefire Will Impact The Energy Industry

Trade War Ceasefire

Although the focus of those in the oil markets has been focused on the tensions between Iran and the U.S. in recent days, with many now thinking that the worst of this impasse has now passed (it has not), primary focus is now set to return to the previous major market driver: the U.S.-China trade war. As U.S. President Donald Trump noted recently in a conversation with China’s Vice Premier, Liu He: “Every time there’s a little bad [trade war] news, the market would go down incredibly. Every time there was a little bit of good news, the market would go up incredibly. And yet, other news that was also very big, the market just didn’t really care. They just seemed to care about the deal with [the] USA and China, and that’s okay with me.” This Wednesday, the U.S. and China are set to sign a ‘Phase 1’ deal that theoretically brings to an end 18 months of trade warfare but the reality may be somewhat different.

The siging of the Phase 1 deal will certainly put at least a temporary floor in the increasingly fractious relationship between the U.S. and China and buying some time is what both sides want. From Trump’s perspective, de-escalating the trade war with China, at least to the extent that it is no longer perceived to be meaningfully damaging U.S. economic growth is good for his popularity ratings ahead of this year’s Presidential Election. Since World War I, the sitting U.S. president has won re-election 11 times out of 11 if the economy was not in recession within 24 months ahead of an election. Conversely, presidents who went into a re-election campaign with the economy in recession lost five out of seven times. In addition, a deal with China – almost no matter how superficial in the first instance - is also key to Trump’s ability to maintain his Republican support in the Senate that he needs to avoid the next stage in the impeachment moves against him. Related: Russia Unplugged: Cyber Control And Censorship

For China, the signing of the Phase 1 deal appears to have given the leadership a renewed sense of optimism about the 2020 growth outlook. “References to the ‘glory days’, achieving the goal of US$10,000 per capita GDP and becoming a CNY100 trillion economy are appearing with greater frequency in state media,” Rory Green, Asia economist for TS Lombard told OilPrice.com earlier this week. “At the same time, however, increased confidence comes with the realisation that the end of the trade war removes a scapegoat for weaker economic activity,” he said. Given that the leadership will not be able to blame the trade war for reduced economic activity, then, the likelihood increases of Beijing seeking to hit its longstanding target of  doubling 2010 GDP level by 2020, he added.

With China’s President Xi Jinping apparently wary of implementing another round of massive stimulus measures for fear of increasing China’s already huge debt burden and further destabilising its official and shadow financial system, Green believes that such economic activity will be improved via judicious adjustment to 2018 GDP ( this occurred last December) and continued moderate easing. “We maintain that the 2020 growth target is likely to be around 6 percent and that the objective is non-symmetric,” he told OilPrice.com. “By this we mean that if economic activity surprises to the upside in half one of this year then the Party – in line with its overarching goal of sustainable growth and its new mandate for ‘scientific’ stimulus – is likely to taper policy support rather than maintain pro-cyclical measures and drastically overshoot the 6% level.”

Looking further ahead, though, depending on the result of this year’s U.S. election, this rapprochement between the two countries is likely to come under renewed strain, to say the least. Central to this will be how precisely the U.S. proceeds in handling the continued growth in China’s technological capabilities and global reach. Until the U.S. backed down late last year, China was considering “a range of ante-upping options against the U.S. and its allies in Asia-Pacific”, a Moscow-based senior political source in the Russian Presidential Administration told OilPrice.com earlier this week. “The plans were not used when it [the U.S.] continued with the licence for Huawei [on 18 November],” he added. There was some considerable questioning in the White House as to whether to grant Huawei a licence extension permitting Huawei Technologies to buy components from U.S. companies to supply existing customers as previously the U.S. government had blacklisted Huawei in May on the allegations that the Chinese technology giant is involved in activities contrary to U.S. national security or foreign policy interests.

Related: Banksy Stirs Things Up Again In Bethlehem

At the same time, the U.S. had added another 46 Huawei affiliates to the ‘Entity List’ (to a total of more than 100 Huawei entities) that comprises companies effectively banned from doing businesses with U.S. firms. “Such is the centrality of U.S. semiconductor firms in manufacturing chains that a ban by Washington could effectively cut off global semiconductor supplies,” said TS Lombard’s Green. “The result would be a modern day equivalent to the Japan oil embargo that was imposed by the U.S. [on August 1941, in response to Japanese actions in then-Indochina] and that was a key prompt for the attack on Pearl Harbour,” he said. “For hawks in the Chinese government, U.S. actions against Huawei and its related companies would be very near to a declaration of war,” he added.

The major risk before the U.S. election, on the other hand, according to Green, would be if Trump feels that he needs a boost going into the polls and thought that re-opening the trade war would be a vote winner. Being seen to be tough on China is becoming more appealing to U.S. voters with a survey late last year by the non-partisan U.S. think tank, Pew Research Center, in Washington, showing that only 26 percent of U.S. citizens had a favourable view of China, down from 38% the year before. “Phase 1 targets on technology transfer and IP protection are nebulous, and Washington will be able to find fault here if it wishes,” he concluded.

By Simon Watkins for Oilprice.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment