Europe, Asia Lower as Concerns Shift from Trade Relations to Real Global Economic Slowdown

The major Asian and European stock indexes were under pressure on Tuesday. The selling was being fueled by fears of a global economic slowdown. Uncertainty over future U.S. foreign policy is also driving investors to the sidelines after President Trump’s surprise announcement on Friday of new tariffs on Mexico starting June 10.

Although U.S.-Mexico trade relations are grabbing the headlines at this time, investors continue to keep a close eye on trade tensions between the United States and China.

Trade tensions between the two economic powerhouses escalated on Monday after the Trump administration said that China was pursuing a “blame game” in recent public statements and a white paper released on Sunday that misrepresented the trade negotiations that broke down in early May.

U.S.-China Trade Dispute

On Monday, the U.S. Trade Representative’s (USTR) office and the U.S. Treasury reiterated their views that China’s negotiations had “backpedaled” on important elements of a deal that had been largely agreed, including on an enforcement provision.

“Our insistence on detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty,” USTR and the Treasury said, “Rather, the issues discussed are common to trade agreements and are necessary to address the systemic issues that have contributed to persistent and unsustainable trade deficits.”

“The United States is disappointed that the Chinese have chosen in the ‘White Paper’ issued (on Sunday) and recent public statements to pursue a blame game misrepresenting the nature and history of trade negotiations between the two countries,” USTR and Treasury said in the statement.

The USTR and Treasury concluded with, China’s “long history of unfair trade practices,” and U.S. negotiating positions have been consistent throughout the talks.

Their comments were in response to remarks from China over the weekend that said it would be impossible for the United States to use “extreme pressure” to force concessions from China.

U.S.-Mexico Tariff Discussions

Officials from the U.S. and Mexico have begun trade discussions. Although Trump is using a 5% tariff threat as a weapon, the key issue at these meetings is what Mexico plans to do to stop the migration of potentially hundreds-of-thousands of Central Americans into the United States.

So far the tariff threat has been one-sided with the U.S. taking the lead. Mexico has yet to retaliate, however, the markets seem to be pricing in an eventual move by the Mexican government. Primarily at risk are food, auto and oil industries.

Is There Hope of a Short-Term Resolution?

First things first, the current U.S.-Mexican standoff could end quickly if Mexico makes an effort to stop the migration. The U.S. may accept the initial terms of an agreement while both sides continue to hammer out the details. In this case, Trump may postpone his threatened tariffs, which are set to begin on June 10.

Stocks would likely bounce back from their current lows if this were to take place.

The wildcard is whether President Trump and Chinese President Xi Jinping meet at the G20 leaders’ summit later this month in Japan. This would be seen as a positive by investors. President Trump has been relatively quiet about China recently and Xi Jinping rarely says anything except at a formal event. Both parties have decided to let their representatives do the talking.

Some will argue that the market is overreacting to “unofficial” comments. Let’s face it, there hasn’t been much discussion about a trade deal in the news recently with both sides essentially rehashing past events and placing blame on each other for the breakdown in negotiations.

It’s not going to take much to turn the stock market around. All the U.S. and China have to say is that negotiations are back on. Remember that serious trade talks began after Trump and Xi Jinping met in December. This could happen again later in the month.