Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 07 April 2017 at 8:48 GMT

The Trump/Xi meeting and the silver lining

Managing Director / Asia-analytica Research
  • North Korea’s antics are upstaging economic issues at the summit 
  • The likely silver lining is on the commercial front 
  • Beijing may well hope to defuse tensions by offering “Tweet-able” concessions 
 Both the US and China have their eyes firmly fixed on Pyongyang. Photo: Shutterstock

By Pauline Loong

Markets hate uncertainty and there will plenty of that at the summit meeting that started in Florida Thursday between US President Donald Trump and Chinese President Xi Jinping. 

The two countries are at odds over just about everything: trade, investment, Taiwan, the South China Sea, and now how to deal with North Korea’s increasingly aggressive nuclear programme. President Trump has ominously threatened to act unilaterally if China does not help rein in its ideological ally.

These are highly complex issues to which there are no simple solutions. Any announcement at the end of the summit is likely to hold multiple layers of interpretation that would add to market uncertainty rather than end it.

Markets have been on the sidelines since the missiles escalation by North Korea put the rogue nation’s nuclear ambitions on to centre stage (editor's note: notwithstanding the strike on Syria overnight). Battening down is the smart move in the event the Trump-Xi meeting hurtles towards that long-shot ending: a showdown.

Trump is a wild card. And China is in much the same position as markets: still learning to live with the new US president.

The question is not whether Trump will make good on his various threats over North Korea but whether China will say no by saying yes only to specific requests. China decided in February to ban coal imports from North Korea until the end of 2017. The decision was hailed everywhere as a sign that the Chinese are finally putting real pressure on its ideological ally. That China may already have been nearing a yearly cap on coal imports from North Korea set by a previous UN resolution received little media or investor scrutiny.

And there is trade. The US-China trade imbalance is well documented. China is the Americans’ biggest trading partner with the largest surplus in the trade of goods, accounting for $347 billion last year or almost half of the US total.

What would send markets tumbling is if the Trump administration formally announces substantial tariffs on Chinese exports to the US.

Such a move, however, seems unlikely at this point. Apart from anything else, retaliation concentrates even the most impulsive minds. It will not be lost on the US administration that China is among the top three export markets for 33 American states.

 China is the top export for 33 US states. Photo: Shutterstock

China also argues it is not buying more from the US because it will not sell to China the goods that it wishes to buy, such as certain high-technology products.

But perhaps more importantly, Beijing understands the political realities facing the Trump administration and may well be prepared to offer the US leader “Tweet-able” concessions.
In times past, Chinese leaders visiting foreign countries bring with them tangible expressions of goodwill. In 2015, President Xi lf sealed a multi-billion dollar deal to finance nuclear power stations in Britain during his state visit there.

President Xi may or may not continue the practice. But he will certainly come prepared with goodies. Lending itself to positive headlines would be Chinese concessions on say steel, or new jobs-creating Chinese investments in the US, or perhaps even a timetable for allowing American companies to list in China’s domestic A-shares market.

A triumphalist tweet about bringing jobs back to the US and cracking open the Chinese stock market for American companies would go a long way towards defusing pressures to levy heavy tariffs on Chinese exports to the US. And that would definitely cheer markets.

Better access to the Shanghai Composite Index and other Chinese stocks
would be an easy win for the US that China could give up. Photo: Shutterstock

— Edited by Martin O'Rourke

Pauline Loong is managing director of Asia-analytica Research


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail