Former Morgan Stanley Chairman Warns Investors About US-China Trade Deal


The US-China trade deal is one of the most closely watched developments in international economics, with markets often reacting to the slightest progress made. While most people are expecting markets to jump should a definitive deal be made between Beijing and Washington, one expert has the opposite view.

Former Morgan Stanley Asia chairman and one of the world’s leading experts on Asian markets went on CNBC’s “Trading Nation” to talk about how the markets would respond to a deal, warning that any rallies would be fleeting.

“The most probable outcome is going to be encouraging to the markets on a very short-term basis, but when the dust settles, there will be some realization that this is not a fundamental breakthrough – that the conflict will be enduring. Take profits very quickly, which would be my sense,” said Roach in the interview.

As someone who has been rather critical on the Trump administration’s tariff strategy with China, Roach has gone on to say that even with a trade agreement between the two powers in place, it wouldn’t do much to change the overall economic situation between the two countries. China would likely agree to a multiyear agreement to buy agriculture, energy, soybeans, and other areas, but the former Morgan Stanley Chairman doesn’t think it will be enough to keep US investors excited.

“The bulk of the progress will be on the bilateral trade front, which, quite frankly, as an economist I find the least appealing because that’s really a reflection of our own macroeconomic imbalances,” Roach said. “If we can squeeze the Chinese piece, that’ll just send those goods to another higher cost producer. So this is sort of a cosmetic deal, at best. But it’s a deal, and it’s better than nothing.”

While the expert expects a final agreement between the two nations to arrive next month in April, he doesn’t feel that this has anything do to with the US’s tariffs placed on China. “I don’t think they’re in desperate shape. The downside pressures are transitory; they’ll be able to stabilize and then show some gradual improvement,” he added.

The US Treasury Secretary Stevan Mnuchin and Trade Representative Robert Lighthizer has arrived in Beijing on Thursday as they prepare for the latest round of talks aimed at resolving the few sticking points surrounding an agreement. The two groups will resume talks on Friday as markets watch with much anticipation.

Although some progress have been made during the telephone negotiations between Vice-Premier Liu He and his US counterparts, there are still lots of work to do,” said Chinese commerce ministry spokesman Gao Feng according to the South China Morning Post.

However, others aren’t as optimistic about a quick resolution. Larry Kudhow, head of the National Economic Council, went on to say yesterday that he could very well see these talks stretching on for “months,” as reported by The Financial Times. Overall, the pace of the negotiations has been increasing over the past couple of weeks, and while China wants all of the US’s tariffs lifted should an agreement take place, Kudhow suspects that some will still have to stay in place.