Any relief that investors felt after the early December announcement of a 90-day trade war truce between U.S. and Chinese leaders at the G-20 summit in Argentina evaporated in just 24 hours when tensions between the U.S. and China once again ratcheted up.
The agreement reached by Presidents Donald Trump and Xi Jinping reportedly called for the U.S. to leave tariffs on more than $200 billion worth of Chinese products at 10 percent while waiting at least 90 days before raising the tariffs to 25 percent, allowing the two countries to move forward with talks, according to the White House.
The White House said China would purchase an undetermined, “but very substantial, amount of agricultural, energy, industrial, and other product[s] from the United States to reduce the trade imbalance between our two countries.”
“This was an amazing and productive meeting with unlimited possibilities for both the United States and China,” Trump said in a news release. “It is my great honor to be working with President Xi.”
But days later news surfaced of the arrest of Meng Wanzhou, chief financial officer of the Chinese tech giant Huawei. Meng was arrested in Canada and was expected to be extradited to the U.S. on charges of violating U.S. sanctions on Iran, sparking outrage from China.
The arrest, along with renewed rhetoric over tariffs from the Trump administration, sent markets into a nosedive. The Dow fell 799 points on Dec 4, then was down by a similar amount two days later before recovering much of the losses before closing.
As we’ve said throughout 2018, the negotiations with China are, and will likely remain a bumpy, extended ride. A lot can happen in the next 90 days, and therefore short-term major market reactions are often overblown. We believe it is likely a deal will be reached, and there will be both winners and losers. This makes focused stock selection even more critical for investor success, and we remain focused on evaluating our holdings relative to the potential outcomes of the negotiations.
We expect the market to smooth out over trade until the next big rhetorical storm.