In this Q&A, Chief Investment Officer Robert J. Horrocks, PhD, Investment Strategist Andy Rothman and Portfolio Strategist David Dali discuss the investment implications if there is no resolution to the U.S.-China trade dispute and share their views on the economic and political environment in China.
If there is no trade deal between the U.S. and China in the foreseeable future, does that put a stop to the liberalization of Chinese financial markets?
Andy Rothman: First of all, I do think there will be a deal between President Trump and President Xi by the end of the year. Even if there is not, I think that puts more pressure on China to move ahead more rapidly with reforms—not only in the financial sector but also in the rest of the economy. While exports are important to China, they are by far not the most important part of its economy. In order to make sure that the domestic-demand side of its economy continues to thrive, China is going to have to push ahead with reforms even more quickly. We have seen steps toward that already. China has cut tariffs and improved market access for companies from countries other than the U.S.
If no trade deal materializes and there is an extended trade war, what would be long-term effects on China's economy?
Andy Rothman: Chinese policymakers and economists in Beijing tell me that they have a backup plan: if the tariff dispute blows up into a full-blown trade war with the U.S., they're prepared to undertake a fiscal stimulus to try and compensate for it. I think they can be successful--we've seen this before--in dealing with these consequences of a full-blown trade war with the U.S. And that will include efforts to soak up unemployment from anybody who loses their job and to rebuild confidence and get investment back up. So I think with our focus on Chinese companies selling goods and services to Chinese consumers, that from an investor's perspective, this is going to be pretty well-insulated from the impact of a full-blown trade war, just like I think the Chinese economy itself will be reasonably insulated.