U.S.-China Tensions and the Impact on U.S. Corporations

Until the coronavirus crisis, the U.S.-China trade deal policy directly influenced the stock market prices, and overall  financial markets over the last few years. 

In addition to the tensions with China, the U.S. has lowered the corporate tax rate, changed NAFTA, withdrew from the climate change accord, from the Iranian deal, imposed tariffs, and so on.

Nowadays, the battle has entered a different level. It is not about tariffs or phase one or two of any possible Chinese deal. Instead, it is about a full boycott – the U.S. made it clear that no federal loans are made to any U.S. corporation that outsources its products or part of its products in China. Moreover, President Trump makes it clear every time he has a chance that this is the Chinese virus we are dealing with, not the coronavirus.

Therefore, the level of discontent between the U.S. and China is on the rise, at the risk of escalation. Should Trump win a second term, U.S. corporations are faced with huge losses if the U.S. – China’s relationship does not change for the better.

U.S. Corporations at the Risk of Losing Billions in Sales

Despite the headlines and all the coverage it has received during the last years, the U.S.-China trade deal or developments on this front failed to bring the intended results. For example, the U.S. administration aimed at the Chinese to buy more products from the U.S. (e.g., agricultural, etc.). However, a recent study by Gavekal Dragonomics reveals that the Chinese imports of goods from the United States actually declined since the 2016 Trump’s election.

Moreover, U.S. exports of goods and services to China declined too. Thus, it makes it exceedingly difficult to understand the war between the two countries, as trade is dampened at the expense of both economies. What is even more interesting is that the more the economic and political conflict escalates, the more U.S. corporations are hurt by losing billions in sales.

If we can say something about the impact of the U.S.-China trade deal, then the outcome is seen on the U.S. corporations sales to China. U.S. firms and their affiliates sold more goods and services to China during Trump’s administration by about a hundred billion dollars more. This is at risk, on top of the five hundred billion sold prior to Trump’s election.

The coronavirus pandemic slowed down globalization, and as a result, isolationist policies emerged. If U.S. and China do not find common ground soon, U.S. corporations’ earnings are threatened.

And, with them, Trump’s much-beloved stock market performance.

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