The talks of trade tariffs between the United States and other countries, specifically China, have wreaked havoc on global stock markets for the last four months. With the two biggest economies in the world seemingly at odds, who can blame investors for being nervous. On Sunday, President Trump extended an olive branch to China ahead of the second round of trade talks this week.
President Trump instructed the Commerce Department to work with Chinese technology company ZTE in order to get the firm back up to full production. ZTE was crippled when the Commerce Department placed a ban on the company’s products. The ban came after ZTE was caught illegally shipping U.S. goods to Iran.
ZTE is China’s second largest telecom equipment maker and was had to shut down operations last week after the U.S. ban was enacted. The ban was put in place to bar American companies from selling components to ZTE. There has been a trading halt on shares of the company since the company announced it was halting operations.
On the surface the original ban was aimed specifically at punishing ZTE, but there were also repercussions domestically among ZTE’s suppliers. The most notable damage came to Qualcomm (Nasdaq: QCOM) which saw its stock drop over 12% after the ban was announced.
U.S. and Chinese officials are expected to meet later this week and it will be the second time the sides have met to discuss the trade war. The first real action in the trade war came in January and it came just before the top in the S&P 500. At the heart of the negotiations are intellectual property rights, trade deficits, tariffs, and currency valuations.
The two sides seem to be rather far apart, but the tweet from President Trump seems to be a step in the right direction. President Xi of China countered with a move of his own by instructing China’s Ministry of Commerce to reopen the review of Qualcomm’s acquisition of NXP Semiconductor.
While the whole thing seems like a game of tit for tat, it could have a huge impact on both economies. The stock markets of each country are both down since the tariff exchanges started back in January. The S&P 500 is down just under 4.0% and the Shanghai Composite is down over 11%.
While the markets might not be the focus of the two governments, they should at least serve as a warning signal to the leaders that they need to work things out. These are the two largest economies in the world and any action taken that hampers trade will have ripple effects throughout the global economy.
China’s Vice Premier, Liu He, is expected in Washington on Tuesday for the second round of talks with Treasury Secretary Steve Mnuchin.
Let’s hope the there is some progress made as that would take some pressure off the market.