The outcome of the US midterm elections could help improve the trade stand-off between Washington DC and Beijing, State Street Global Advisors (SSGA) has said.
The Republican Party held on to the US Senate, but lost the House of Representatives to the Democrats, ending GOP rule. However, US President Donald Trump continues to be able to use executive power to set trade policy.
The outcome of the midterms favours a course correction, according to SSGA. “With the arrival of several domestic challengers, Trump will refocus attention on domestic matters where he can leverage American polarisation to his benefit,” said Elliot Hentov, head of policy and research at SSGA.
Trump had escalated the trade war with China significantly prior to the vote on November 6, slapping sanctions on $250 billion (€222 billion) of Chinese imports, but this could change course.
“Any Chinese proposals that offer improvement in the US trade balance and intellectual property protection could be sufficient for Trump to call a ceasefire in the trade war, at least until the dispute becomes politically useful again. This could remove a major market concern over the coming year,” added Hentov.
What is the outlook with a Democrat-controlled House – the first since 2010? “Investors should be more reticent of the potential for a change in administration and what that could mean for markets, the economy, healthcare, energy, defence, and merger and acquisition activity,” said David Giroux, T. Rowe Price’s head of investment strategy.
“We have had a very pro‑business, anti‑regulation, tax‑cutting administration that has been very good for the stock market. Some would argue that is why we have had such strong economic and wage growth this year. If we have a change in regime, that could reverse some of these policies and have a knock‑on effect on the economy and stock market. The market is forward-looking, so as we think about 2019 and 2020, that possibility will become a factor,” he added.
©2018 funds global asia