The trade dispute between the world’s two biggest economies, China and the US, remains one of the most significant investor concerns of 2019. Markets react with increasing sensitivity to fresh hopes – or stumbling blocks – emerging in the ongoing negotiations.
In the background, a slowdown of Chinese and global growth is further cranking up the levels of anxiety.
The two countries’ respective positions on trade and deficit receive much attention. What is less examined is the language used by either side. Although China has said little officially about the disputes, a careful reading of what it has put out is revealing.
President Donald Trump says a lot and says it loudly. His messages fluctuate. China, by contrast, doesn’t do bluster. It says very little and what it does say is brief, considered - and highly consistent.
My colleague, Global Economist Janet Mui, has read China’s official statements in their original Mandarin and cites some interesting examples. China is prepared to be accommodating and flexible – but only up to a point. Its officials come to the table with some genuine concessions, but its language conveys a clear limit. In its November 2018 G20 statement, for instance, she points to the use of a Mandarin word loosely translated as “reasonable”. China is prepared to meet “reasonable” US demands. This is significant: Janet sees it as China making a forceful point about how far it is prepared to go.
Elsewhere she sees China going even further, and using its habitually polite, restrained language to deliver a coded threat. It has offered to help address the trade deficit, for example, only “according to Chinese domestic market conditions and the demand of the people.” Put more bluntly, it’s warning the US not to push.
As Janet said: “The contrast in tone is remarkable and it’s partly down to the different cultures of the two countries. But China’s message is in essence very brief and remains consistent. “It’s saying: ‘if you hurt our economy, you’ll hurt yours too’.”
For now China doesn’t need to add much to this argument – corporate data from the US is stepping in to make the point on its behalf, and markets are only too aware. The trade deficit was widening at the end of 2018, and corporate results in January this year have shown just how much a Chinese slowdown can hurt US business.
Construction machinery producer Caterpillar, computer processor maker Nvidia and Apple are among a growing string of companies where disappointing results announced in early 2019 have been linked to China’s slowdown.
As part of global asset manager Schroders we benefit from an enormous depth of research and analysis undertaken by colleagues around the world. This rich resource provides insights that feed our investment process. The Schroders Sustainable Investment Team, for example, has developed a model assessing the risks trade barriers pose to companies’ supply chains. Its latest quarterly report highlighted the five most exposed industries in the US: household products, internet retail, containers and packaging, life sciences and aerospace and defence.
For now – at least in terms of the clarity and consistency of its message – China appears to occupy the higher ground.
This article first appeared in The New Statesman
