Earlier this year in January, President Trump completed the signing of a phase one trade deal with China as the world’s two biggest economies made a step towards reining in an 18-month trade war.
The deal takes steps to root out several practices such as intellectual property theft and forced technology transfers, in exchange for Chinese market access, as per the text that was released by the White House. It also detailed and was a massive key for Trump, that a $200 billion increase in Chinese purchases of U.S. goods over two years was completed.
However, a report said China could invoke a clause in the agreement that allows for fresh trade consultations between the two countries “in the event of a natural disaster or other unforeseeable events”.
Trump did note this recently, saying “If that happens, we’ll do a termination and we’ll do what I can do better than anybody.”
Given the extent of the Coronavirus impact on China, we believe there is a good chance they will try to exercise this noted clause, which will likely spark problems again, given Trump’s comments.
Furthermore, relations do not appear to be the best at the moment between the U.S. and China. It follows Trump announcing that his government is investing whether the coronavirus panic originated from a Wuhun lab. Following this, Chinese officials warned the relationship between Beijing and Washington will need to be "rethought".
What does this mean for the market?
There is every chance of this returning to the market focus, which as was seen the last time, forced big safe-haven flows. Gold (XAU/USD) was the one that most benefited during this saga. Prices at the moment are already gaining thanks to the huge government and central bank stimulus measures.
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