PARIS (Reuters) – The United States and China will have next week what might be their last chance to mediate a ceasefire in an increasingly dangerous trade war when their presidents meet in Buenos Aires.
US President Donald Trump and Chinese President Xi Jinping (R) meet in the margins of the G20 summit in Hamburg, Germany, on July 8, 2017. REUTERS / Saul Loeb, Pool
With global growth increasingly plagued by the friction between the two largest economies, tensions will come to a head when Donald Trump and Xi Jingping meet in the margins of a G20 summit in Argentina.
Washington plans to raise tariffs for $ 200 billion of Chinese imports to 25% from 10% in January if there is no agreement.
"We are optimistic about the summit as an opportunity to avoid further escalation, but not to withdraw the already announced rates," the UBS economists wrote in a research note.
They said that the time was running out before the end of the year to work out a different rate schedule.
Washington accuses Beijing of not playing enough on the trade while China claims that the United States is protectionist.
"If an agreement is not reached, investors should realize that tariffs are no longer a bargaining chip to bring China to the negotiating table," wrote Daiwa Capital Markets analyst Kevin Lai in a statement search.
"Rather, tariffs are becoming part of a long-term strategy to disconnect China from globalization, restrain its economic power (and therefore its soft and hard strength altogether) and give the United States greater strategic advantage," added.
The OECD warned this week that a full-blown trade war between China and the United States could bring global growth of 0.8 percent less by 2021 and even more for the two countries.
"Trade is the biggest threat to our economic outlook and the lack of dialogue is a very high concern for us," said chief OECD economist Laurence Boone while presenting a downgraded global growth forecast on Wednesday.
Although the relapse of China-U.S. the stalemate is also affecting other regions, in Europe Brexit will also occupy the minds when British Prime Minister Theresa May strives to get support for Britain's British withdrawal treaty.
Guaranteeing the support of the other 27 EU governments in Brussels on Sunday is only a first obstacle, since a bigger obstacle lies in the beginning of December, when May will seek the support of the British Parliament.
"This conclusion – that the basic case is that the House of Commons will vote against the agreement – is rapidly becoming something that comes close to a consensus in London," wrote Lombard Lombards analyst Constantine Fraser in a research note.
As geopolitical factors such as commercial frictions and Brexit cloud the economic outlook, next week's central bankers' speeches will be examined closely for any suggestion of a rethinking on their monetary policy pathways.
Fed President Jerome Powell is due to speak on Wednesday in New York and the president of the European Central Bank, Mario Draghi, will take the turn Thursday in Frankfurt.
With some hiccups in the data market during the week, news headlines are more likely to drive investors' risk appetite, already on the defensive after recent market volatility attacks.
Reporting by Leigh Thomas; Editing by Gareth Jones