Will US/China Relations Survive COVID-19 Crisis?

Trading Tips

US/China Relations In Focus

With the COVID-19 crisis commanding the attention of governments around the globe, the trade negotiations between the US and China have been put on the back-burner for now. In some respects, the emergence of a global health crisis has shone a light on how petty and unnecessary the two-year trade stand-off between the US and China really was. Nevertheless, with both countries image and reputation at stake, guards have not been let down.

With the recent lock-downs creating the sensation of days all merging into one, let’s quickly recap the latest update from the trade-war saga. On January 15th, which now seems a lifetime ago, the US and China put pen to paper on the phase-one trade deal which was born out of talks held as long ago as October 2019.This phase one commitment saw China agreeing to dramatically increase a range of purchases of US goods, along with improving US access to some Chinese markets, in exchange for the US lifting tariffs on some of the goods levied during the trade war.

This phase one deal was also to pave the way for continued negotiations between the two sides aimed at delivering a phase two deal which would finally see all tariffs (from both sides) dismantled and a return to free trade. However, the current crisis has thrown the negotiations into a frozen locker for now as both governments engage in an all-out effort to stop the COVID-19 from destroying their respective countries, on both a human and a economic level.

Fragile Truce

Relations between the two sides during this period have been somewhat volatile. Last in March, Trump an Xi JinPing spoke on the phone to agree a truce. Trump had previously angered Beijing by referring to COVID-19 as the “China virus” or “Wuhan virus”. Trump also accused China over threatening the safety of the globe due to neglect which led to the outbreak of the virus.

However, the two leaders agreed to put an end to the burgeoning spat and on the back of the call China was scheduled to make large shipments of Medical equipment to the US. China has been involved in large scale shipments of medical supplies around the world as well as lending the expertise of its medical staff to other countries.

However, there have been a number of reports of defaults with equipment that China has sent out, including reports of highly inaccurate testing kits sent to Spain. On the back of a number of these reports, China has imposed new regulations as of Friday which mean that all items being shipping will be individually checked by customs officers. The issue is that these new regulations are leading to massive delays in shipments to the US as a time when the US death toll is fast soaring above other countries in the world.

Tensions Simmering Again?

Some in the US administration have warned that the US should not be accepting medical supplies from China which they claim, will feed into Chinese propaganda. With supplies under huge delays now, there are signs that tensions between the US and China are starting to fray once again. During a press conference earlier in the week, Trump went back to using the “Wuhan virus” slur which angered Beijing previously. Trump has now also announced that he is cancelling funding for the WHO which he accuses of being involved in a cover up with China over the COVID-19 outbreak. Traders will now be watching closely to see how relations between the US and China develop with the risk that trade negotiations could be negatively impacted once the virus passes.

Technical View

USDCNH (Bullish above 7.0570)

From a technical viewpoint. USDCNH broke down out of the recent triangle pattern and fell back below the 7.0570 level. However, the market found support at a retest of the broken bearish trend line and has since moved back above the 7.0570 level. With VWAP positive, while above here the bias remains bullish in the near term.

Will US/China Relations Survive COVID-19 Crisis?

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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