What a ‘no-deal’ U.S.-China trade scenario would mean for stocks and bonds

Imagine there’s no trade deal and that the U.S.-China battle is left to rumble on through most of next year instead.

That scenario is one that stock-market participants must now debate as equities tumbled Tuesday after President Donald Trump indicated he’s in no hurry to complete any accord with Beijing and that it might be best to wait until after next year’s presidential election.

Trump, speaking in London, said he had no deadline for completing long-running U.S.-China trade talks. “In some ways, I think it’s better to wait until after the election if you want to know the truth. But I’m not going to say that, I just think that,” he said.

U.S. Commerce Secretary Wilbur Ross followed up Trump’s comments on Tuesday in a CNBC interview, saying that the president was under no “time pressure” to strike a deal with China and that another round of tariffs would be imposed on Chinese goods on Dec. 15 unless there was “some real reason to postpone them.”

Whether Trump’s remarks were merely a negotiating tactic, or represented the potential for a full breakdown of negotiations, remains the subject of speculation. Taken at face value though they indicate that the trade war would be a “semi-permanent facet of global commerce throughout next year,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

And it’s also not difficult to imagine a “no-deal”-based Trump re-election campaign despite conventional wisdom to the contrary, he said, in a Tuesday note. In that scenario, Trump would campaign as the only candidate capable of pushing forward his trade agenda.

See: Would no China trade deal bring more Fed rate cuts? It’s not that simple, analysts say

“The market implications of ‘no deal’ are ostensibly straightforward; trade-war-inspired global uncertainties will limit the upside for risk assets

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