US-China Trade Deal Unlikely Before 2020 Poll: Goldman Sachs

Despite the rising pressure on equity markets from the escalating U.S trade war with China, there is no chance of a trade deal between the two economies before the U.S. presidential election next year, according to investment bank Goldman Sachs.

It is a significant update to the trade war news. The Goldman analysts reflected that they do not think the world’s two largest economies being able to resolve their long-running trade dispute before the 2020 polls.

Analysts led by Chief Economist Jan Hatzius of Goldman Sachs said in a research note that they had seen the delay coming in the trade deal well in advance.

“News since President Trump’s tariff announcement last Thursday indicates that U.S. and Chinese policymakers are taking a harder line, and we no longer expect a trade deal before the 2020 election.”

Goldman’s observations came shortly after the U.S. officially designated China as a “currency manipulator” escalating the trade tensions further.

Trump’s approach to trade deal changed

The analysts observed they had seen a change in Trump’s approach to a trade deal.

“While we had previously assumed that President Trump would see making a deal as more advantageous to his 2020 re-election prospects, we are now less confident that this is his view,” analysts said, adding a new update to the Trump news on the trade war front.

The Wall Street Journal also reported that Trump had dismissed all objections from his trade team and somewhat unilaterally took the decision to clamp levy on $300 billion worth of Chinese goods not affected by any American levies so far.

Goldman Sachs also noted that China’s decision to halt purchases of U.S. agricultural goods and forcing yuan to break the psychologically important level of 7-per-dollar “added a swift response” to Trump’s new tariff threat.

However, the U.S. Treasury countered Beijing on Tuesday by accusing it of intentionally “influencing the exchange rate between the yuan and the U.S. dollar” to attain an “unfair competitive advantage in international trade.”

China had warned that it would fight back President Trump’s proposed 10 percent tariffs on $300 billion worth of Chinese imports from Sept 1.

Noting that Chinese policymakers are likely to go for a long haul until after the 2020 U.S. presidential election to solve the dispute if at all necessary, Goldman surmised that “a trade deal now looks far off.”

Meanwhile, a leading economist warned that both the United States and China will have their reasons to end the trade war. Robin Brooks, chief economist at the Institute of International Finance noted that Beijing must worry about capital outflows and weakening of exports, the U.S will have to consider the damage trade war is inflicting on the stock markets and investors.

Fed’s next rate cut likely in October

Meanwhile, Goldman Sachs made some interest rate forecasts for the U.S. Fed for the coming months.

Noting the Fed had been “increasingly responsive” this year to trade war threats, and global growth concerns, it said “a third 25bp (basis point) rate cut in October” looks likely.