October 09, 2019
The United States and China have faced growing economic pressure to reach a trade deal. However, the stress may be fading for one party.
As shown in LPL Research’s Chart of the Day, China’s economy is exhibiting signs of stabilizing growth, according to composite leading indicators (CLI) data from the Organisation for Economic Co-operation and Development (OECD). The OECD’s assessment of the Chinese economy improved for a sixth straight month in August, while the OECD’s U.S. gauge continued to slip.
To be sure, the OECD’s leading indicators gauge shows that both the United States and China are seeing “easing growth momentum” (below 100), indicating that growth still could slow for both economies in the next several months, even though China’s outlook is improving.
In neither case is this a recession warning, though. The OECD CLIs are relative to long-term growth trends, and deviation from trend may represent different risks to the two economies. The OECD gauge for U.S. leading indicators has also pointed to easing growth momentum at three other points in this economic cycle, and the measure has rebounded each time.
The U.S.-China trade dispute is hitting a major milestone this week, as U.S. and China officials are slated to kick off face-to-face trade discussions in Washington, D.C. October 10. There are reports that both parties may consider a partial deal to avoid future tariffs, so there’s a chance we could see some important thawing in the relationship before the Asia-Pacific Economic Cooperation meeting in November.
“Trade tensions have had a meaningful impact on the global economy,” said LPL Financial Chief Investment Strategist John Lynch. “Any progress in talks this week could further relax tensions, allowing for global regions to recover from disruptions caused by trade over the past year.”
Of course, resolution of trade tensions is not simply about seeking efficient growth. There are also important issues around fair business dealings, intellectual property rights, national security issues, and even the relative merits of capitalist democracies and autocratic states. It’s unlikely that we will see every issue resolved in the near term, but we’re hopeful that a few concessions can help ease trade uncertainty and boost global demand.
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