US: No trade deal with China is the most likely scenario – Danske Bank

Danske Bank analysts point out that the US-China trade relations have clearly deteriorated and their baseline scenario is now that the two countries will not reach a deal this side of the 2020 election.

Key Quotes

“In this scenario, we see two possible paths. One is no deal but a status quo without much further escalation (35% probability). The other is an all-out economic war in which we see a significant escalation of the trade war (25% probability).”

“We also still envision a scenario (40% probability) in which Donald Trump scales back his demands on China to reach a deal in 2020, in which China buys significant amounts of agricultural products.”

“Trump's big headache with respect to the 2020 election is the substantial pain the trade war is inflicting on US farmers. These are decisive voters in key swing states, where his showing in the polls is currently weak.”

“Overall, we see a clear increase in downside risks to growth over the coming year. The main restraint on Trump's economic attacks on China is the potential damage to US markets and the economy resulting from Chinese retaliation.”