Trump Holds the Cards, but US-China Trade Needs Balance

Nikolay Stoykov, Managing Partner at Alaric Securities, on “In Development”, Bloomberg TV Bulgaria

Both sides need each other in the trade war between the US and China. While the US may gain something, China could also improve its credibility on the international stage now that the US has lost some of its own. The cards remain in the hands of the US, but balancing trade relations is necessary for both economies. Nikolay Stoykov, managing partner at Alaric Securities, stated this in the program “In Development” on Bloomberg TV Bulgaria, hosted by Antonio Kostadinov.

“It’s hard to say what the diplomats on both sides of the ocean are actually doing. Everyone needs the American market. China certainly has influence, being a major trading partner to many countries (and calls on the international community not to make deals with the US or trust them too much because they’re an unreliable partner – editor’s note). But the US market is the most attractive, and that’s where everyone wants to export to, so the cards are still in the hands of the United States.”

The main reasons for the decline in public activity in China, according to data from the national statistics bureau, include the negative impact of US-imposed tariffs, which are lowering manufacturing activity indices. For example, the manufacturing Purchasing Managers’ Index (PMI) has dropped to 49 points, below the expected 50-point threshold.

Will Stimulus Help China Hit Its 2024 Growth Target?

Expectations for China’s economic growth remain optimistic, but concerns persist, as achieving the target of 5% annual growth may be difficult. Nevertheless, the expert believes that even without additional fiscal stimulus, the Chinese economy could develop positively, especially amid the low expectations of the population and a potential rise in consumer confidence.

Regarding a new package of fiscal stimulus, the expert notes it is possible that Beijing may announce such a measure, especially following calls for new stimulus from the Politburo. However, it is uncertain whether any concrete steps will be taken.

“Even without new fiscal stimulus, the Chinese economy will perform well, given how negative people’s expectations are and how low they currently are. We are seeing a slight rise in consumer confidence, although from extremely low levels. We’re not seeing bankruptcies or rising unemployment. So, to some extent, I expect positive development. If they do take such a step, growth would be much faster. Perhaps their concern is that this might trigger a greater market dynamism and a boom, rather than a slowdown. I can’t say why they’re so slow and conservative, but such a step in the future is entirely possible. Even if they don’t take it, I remain optimistic about the Chinese economy and markets.”

Is a U.S. Recession Inevitable?

A potential recession in the US is possible. Of course, a recession is possible. The big question is whether markets and stock prices will fall. And in the minds of most people, especially younger investors, those things are seen as directly correlated. But that’s not necessarily the case. If we look back at a few business cycles, we’ll see that in the 1990s, when there was a recession, markets didn’t fall that much. They dropped about 10% from their peak and then stagnated,” explained Stoykov. “I’m optimistic about stock prices.”

“I think, yes, a recession is possible. But I don’t believe stock prices will fall. What’s more likely is that the Federal Reserve will cut interest rates faster and more than expected to stimulate the economy.”

When asked whether Trump has grounds to criticize Powell’s policy, the guest said that he somewhat agrees that Powell’s performance deserves scrutiny.

“In fact, I don’t think Mr. Powell is doing a good job. The decisions made since he became head of the Federal Reserve have been extremely slow, and I think Trump has a valid reason to criticize Mr. Powell. There’s certainly no reason to further delay rate cuts. If I had to give him a grade, it wouldn’t be a zero or a failing mark, but definitely not a top one either. It would probably be somewhere between 3 and 4 (out of 6).”

What future awaits BRICS?

Watch the full commentary in the video.

Source: BloombergTV Bulgaria