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James Hyerczyk
U.S. - China Trade Risk

Asia Pacific shares were mostly lower on Wednesday as investors continued to express their uncertainty over the outcome of the high-level trade talks between the United States and China that were set to begin in Washington on October 10.

At stake, should the talks result in nothing substantive, is an escalation of the trade war between the two economic powerhouses with the White House standing ready to hit China with new tariffs on $250 billion worth of Chinese goods to 30% from 25% on October 15.

At 07:59 GMT, Japan’s Nikkei 225 Index is trading 21456.38, down 131.40 or -0.61%. Hong Kong’s Hang Seng Index is trading 25740.62, down 152.78 or -0.59%.

In China, the Shanghai Index is at 2924.86, up 11.29 or +0.39% and Australia’s S&P/ASX 200 Index is trading 6546.70, down 46.70 or -0.71%.

The markets are closed in South Korea.

Stocks lost ground in Asia, but the selling pressure did not match the rout in the United States, where all three major indexes on Wall Street lost over 1%.

US-China Trade Deal Worries at Forefront

Helping to raise the level of uncertainty over even a “mini-deal” between the United States and China was Washington’s expansion of its trade blacklist to include some of China’s top artificial intelligence firms. The move prompted China’s Ministry of Commerce to say the U.S. should “stop interfering” in the country’s internal affairs and “remove” the relevant entities from the list “as soon as possible.”

Furthermore, a Ministry of Commerce spokesperson said, “China will also take all necessary measures to resolutely safeguard China’s own interest.” U.S. investors read this statement to mean China will retaliate for the new black listings. Chinese Foreign Ministry spokesman Geng Shuang said to “stay tuned” for China to fight back.


U.S. Escalates Tensions with Visa Restrictions

The Trump administration on Tuesday put visa restrictions on Chinese officials “who are believed to be responsible for, or complicit in, the detention and abuse” of Muslim minority groups in Xinjiang.

“The United States calls on the People’s Republic of China to immediately end its campaign of repression in Xinjiang, release all those arbitrarily detained, and cease efforts to coerce members of Chinese Muslim minority groups residing abroad to return to China to face an uncertain fate,” Secretary of State Mike Pompeo said Tuesday in a statement.

Low Expectation for Deal

Also keeping a lid on the markets was tempered optimism over a trade deal with Hu Xijin, editor-in-chief of the Global Times saying that China now has “low expectation for real breakthrough.”

Hu Xijin tweeted, “I can feel that Chinese society has low expectation for real breakthrough in the new round of trade talks. Most people think alternate trade war/trade talks will be a normal thing between China & the U.S. Plus, people widely think the Trump administration can’t honor its commitments.

“Mini-Deal” in Jeopardy

Two days ago, markets in the United States and Asia rose on “high hopes for a mini-deal” between the two economic powerhouses. This is one of four outcomes analysts at J.P. Morgan revealed in a note.

Now, just one day before the start of trade talks, reports from China are saying the Chinese delegation may cut short its planned stay in Washington and depart on Friday, dimming hopes for a trade deal.

If China were to walk away from the negotiation table earlier than expected, President Trump would probably impose immediately, the new tariffs on $250 billion worth of Chinese goods to 30% from 25% on October 15. Global equity markets would likely plunge on the news. Furthermore, China would likely retaliate, and the trade war will escalate.

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