Trade Talks; Can A Favorable Outcome Emerge When China Denies Free Technology Allegation

This month is absolutely ripe with upcoming fundamental events that could profoundly shape the financial markets through the remainder of the year. Beginning on Thursday, October 10^th and ending on Friday the 11^th the Chinese negotiating delegation, including vice premier Lui, will begin a meeting with United States and resume trade negotiations concerning the trade dispute that has been ongoing since July 2018.

It was during that month that President Trump made good on his threats to put into effect tariffs on Chinese imports to the United States. Officially on July 6^th, 2018 our administration implemented tariffs on $34 billion worth of imports, with an additional 16^th billion to begin at a later date. The response from China was by responding in kind with similar tariffs for U.S. imports into China starting on the same date.

The threats became fact when on March 22, 2018, President Trump signed a memorandum under the section 301 of the trade act of 1974 instructing the United States trade representative (USTR) to apply tariffs of $50 billion on Chinese imports. The rationale according to Trump was that these tariffs would be imposed due to the Chinese theft of U.S. intellectual properties.

Simply put, these tariffs were implemented because it was alleged that the Chinese had been conducting business using U.S. technology acquired without compensation, as an ongoing trade practice. To put it politely, the acquisition of U.S. technology by the Chinese was acquired for “free” rather than compensated in a “fair” manner. It was reported on September 23^rd that the United States has already imposed tariffs on a total of $550 billion worth of Chinese imports.

Which brings us to why the resumption of trade negotiations at the end of this week will be so complex and difficult. Up to this point the Chinese have denied acquiring U.S. technology without compensation. Because their position begins with the denial of the accused improprieties, it seems highly unlikely that they will it commit to stopping a practice that they readily have stated to not be involved in.

Unless the Chinese acknowledge that they have been using U.S. acquired technology without compensation, it seems extremely unlikely that they will stop a practice that they adamantly deny doing.

Then on October 29^th through the 30^th Federal Reserve members will meet for this month’s FOMC meeting. Depending on data available to Fed members they will decide as to whether or not to implement another rate cut or leave rates where they are. With so much at stake this month we can expect traders continuing to be uncertain as these events play out.

Wishing you as always, good trading,