Chinese President Xi Jinping and First Lady Peng Liyuan wave upon arrival at Ezeiza International airport in Buenos Aires province on November 29, 2018.. Global leaders gathered in the Argentine capital for a two-day G20 summit. Photo: AFP / Juan Mabromat

The mounting trade dispute between the United States and China has dominated global news agendas in recent months, with the onus being on how it will affect global supply chains, and subsequently impact many economies in Asia and around the world.

On the back of Republican losses in the recent US midterm elections, President Donald Trump appeared to be upping his aggressive stance regarding trade talks ahead of the two-day Group of Twenty summit in Argentina, which got under way on Friday.

All eyes will be on Trump and and Chinese President Xi Jinping as clouds gather over the global economy.

Trade conflict between their two nations has unsettled the global economy throughout 2018, rattling global trade and sending major indices into the red.

Although Trump said this month that the G20 represented the ideal opportunity to “make a deal with China,” should a deal not be reached, the situation could escalate quickly, devastating stock-market returns for the next year.

Echoing the president, White House economic adviser Larry Kudlow stated in a press conference last week that trade negotiations would likely “come to a head” at the summit, which could bring positive results, but if this isn’t the case, the conflict will intensify.

Recent warnings of protectionism were largely brushed off by Trump, as he stated he would further extend tariffs on Chinese goods next year if a deal isn’t reached, telling The Wall Street Journal: “If we don’t make a deal, then I’m going to put the $267 billion additional on, at an interest rate between 10 and 25 depending.”

The remark is viewed as further pressure on Beijing to make concessions leading up to the summit.

Trump is looking for concessions on issues such as alleged intellectual-property theft and exploitative trade practices, while Xi hopes Trump will delay or scrap plans for new tariffs on Chinese goods.

While the US president has indicated a willingness to reach an agreement with Xi, he said in an interview with The Washington Post, “I think that China wants to make a deal very badly,” adding that if an agreement isn’t reached, “we’ll be taking in billions and billions of dollars a month in tariffs, and I’m OK with either one of those two situations.”

However, the strength of the US economy has been cast into doubt as stocks on Wall Street have become more volatile and Trump has publicly expressed his anger at Federal Reserve chairman Jerome Powell for raising interest rates.

Meanwhile in China, the economy slowed more than forecast in the third quarter, attributed to tighter funding together with uncertainty fueled by the trade war.

Although steps have been taken to bolster the expansion of the economy, elevated debt levels make broad-based stimulus far less likely.

China has a balancing act between curbing domestic risks, such as excessive debt, and ensuring growth stays on track to safeguard social and financial stability.

As such, failure to reach an agreement at this week’s G20 summit could lead to disastrous consequences to the US, the Chinese and the global economy.

Indeed, the European Central Bank warned this week that escalation to a more generalized trade war, with all countries introducing border tariffs on each other’s imports, could lead to strong financial-market corrections.

The more countries involved or massive hikes in tariffs as well as the goods affected may result in steep interest-rate increases on bonds and falls in the stock market.

Therefore, although the leaders of the 20 largest economies are gathering in Buenos Aires for the G20 summit, aimed at encouraging talk about the health of the global economy, the outcome of the Trump-Xi dialogue will be the main focus.

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Nigel Green

Nigel Green founded deVere Group in 2002 from a single office in Hong Kong after discovering a niche market for expatriates in the financial services sector. Since then, it has grown to become one of the largest independent financial advisory organizations in the world with offices and clients across the globe.