Page 13 - ISQ UK July 2020

JULY 2020

Fragile Truce on the Brink:

Why China Remains a Major 2020 Theme

Ed Mills, Managing Director, Washington Policy Analyst, Equity Research

The year began with the signing of a ‘Phase One’
economic and trade agreement between the US and … we could see some relaxation of tariffs, as a way to
China which was set to provide President Trump with a relieve economic pressures and support recovery.
significant win backing up a strong economy heading
into his reelection campaign. However, as we have We expect the election campaign to entrench negative public
seen in most other areas, the spread of COVID-19 and sentiment against China for the foreseeable future and become a
the associated economic disruption shifted the key campaign issue for both President Trump and former Vice
President Biden. Furthermore, a faster than anticipated
dynamics of the relationship between the US and economic recovery along the lines of the bounce back we have
China in a major way. seen in the market could embolden President Trump to take
more aggressive actions against China, as we have seen
Importantly, the Trump administration’s China ‘hawks’ are now throughout the trade fight of 2017-2019. Throughout this, market
clearly driving the agenda, as evidenced in the recent uptick in attention will focus on the threat of the Phase One trade deal
administration policies challenging China in an increasingly collapsing. Although we anticipate escalating tensions could
broad manner. Particularly, US/China tensions are notably lead to threats to pull out of the deal by either side, the economic
rising in the areas of technology (next-gen 5G networks and relationship may prove to be an important area of cooperation in
advanced computing) and capital markets, which will be order for the two sides to maintain dialogue during a fragile
leading themes for the rest of 2020 and beyond. The tensions global economic recovery.
are also becoming increasingly geopolitical in nature, as we
have seen in questions over the future of Hong Kong and
Taiwan. PRESSURE ON CHINA INCREASINGLY BIPARTISAN
ACROSS THE GOVERNMENT
Looking to the future, we will be keeping a close eye on two In the wake of COVID-19’s disruption in the US, we have seen a
factors which will play a large role in the US/China dynamic in the more unified effort across the government to increase pressure
coming months: the scope and pace of the US economic recovery, on China. A variety of notable actions have come from the White
and political messaging leading up to the November elections. House, Congress, and federal agencies increasing pressure on

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