When diplomacy do wonders: Wall Street soars after the meeting of Donald Trump and Xi Jinping
At the G20 summit that took place on June 28-29, 2019 in Osaka, Japan, the USA president Donald Trump had talks with Xi Jinping (general secretary of the Communist Party of China) concerning the notorious trade war between two superpowers. And American President marked that those negotiations were “excellent”. Such defrosting of trading relations between two ever-conflicting economies became a wake-up call for global stock markets: they surged dramatically.
• For instance, just on Monday following the meeting of China and USA leaders at the G20 summit, Wall Street shares broke intraday records, while DJIA gained over 200 points the same day and closed at record 26,717.
• The relief over the US-China trade clash also did not take long to boost the S&P 500 Index that includes shares of the largest USA corporations by market capitalization. This index closed at the all-time high of 2964 the same Monday after the historical talks of Trump and Xi.
• The cherry on top became the FTSE 100 Index that gained 76 points and closed at 7,502. It seemed that global bourses had never been more flourishing that the day after the US and China leaders shook hands and gave hopes for reaching a trading truce.
What was the reason for such a rally?
Promises are what drives the global economy. Trump said that the United State would not increase import tariffs on Chinese goods, at least, not in the nearest future. Xi, in turn, gave his word that China would not impose import tariffs for the USA, either, but would even buy more agricultural products from America. Just a few optimistic phrases pronounced in front of international journalists are enough to make global stock markets creep up. Who said that words cannot solve conflicts?
The trade opposition between the USA and China turned in a long-running theater of absurd with no side to win. While the leaders of two superpowers were wagging fingers at each other and exchanging threats, the import and export volume in both countries was rapidly decreasing, badly affecting their factory outputs. For example, Trump slapped Chinese goods with $200bn of new import tariffs while China added $60 taxes to the US imports.
But after meeting at G20, China and the USA seem to have reached a significant concession, and this truce is likely to be prolonged, otherwise, both economies can be jeopardized by counter-measures of their governments. If escalated, this trade conflict would further drag down the US growth – the least desired thing for Trump as we approach new presidential elections the next year. But China is also unlikely to continue the trade confrontation because it could bring nothing more but the obvious retardation of its technological development.