No matter the details in the eventual U.S. trade deal with China, investors should realize the relationship is now badly fractured.
That could lead to subpar longer term returns for those companies such as Apple that have outsized exposure to China, suggests one long-time expert on the country.
“It was naive of us to presume this was going to be an easy deal. There will be a deal but the deal will again be short-lived in terms of the relief it provides to the market which would then have to come to grips with this much tougher structural set of issues that endures,” said Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman, on Yahoo Finance The First Trade on Monday. “That lays out the possibility certainly in this administration of a lot of threats and counter threats.”
Roach said it’s most likely that President Donald Trump has “just woken up between tweets to the likelihood that he’s not going to get what he really wants on the biggest issues.”
There could also be a “protracted period of uncertainty” even when a deal is inked, Roach said.
Bumpy markets until trade deal is reached
Investors kicked off the trading week probably feeling a touch depressed as a trade compromise looks further off into the distance. Trump warned on Twitter over the weekend that tariffs on $200 billion in Chinese goods could rise to 25% on Friday. He added that a 25% tariff will soon be assigned to a selection of $325 billion in presently untaxed goods.
The pronouncements shocked many market watchers and no doubt the Chinese. It’s unclear if the Chinese trade delegation will travel to the U.S. for further talks as scheduled this week.
Goldman Sachs economists said there is a 40% chance Trump’s latest tariff threats will go into effect on Friday.
The Dow Jones Industrial Average tanked more than 400 points early in Monday’s session, but has since recovered some of its losses.
“Our sense is the threat of escalation could be a negotiation tactic as the White House attempts to drive a better deal,” SunTrust Chief Markets Strategist Keith Lerner told Yahoo Finance. Lerner said with the markets just off record highs, Trump may have felt emboldened to rattle his sabers.
Roach agreed, noting that Trump “is bluffing. He’s the tough guy, this is part of the Art of the Deal script,” adding that he may impose the higher tariffs for 24 hours but will convene a presser that would lead to a trade deal.
“The market is likely to become bumpy and headline dependent until there is more clarity on trade,” cautions Lerner.
Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi
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