The iShares China ETF (TSX:XCH) rose 1.75% on August 20. The news that trade talks between the United States and Chinese delegations would take place this week brought about optimism among some analysts and economists south of the border.
However, investors have been subjected to a number of false starts and dashed hopes as the trade war between the two economic powerhouses has worsened in 2018.
The iShares China ETF has dropped 5.2% in 2018 so far. This was after a 27% surge in 2017 as China led a fantastic year for global growth. The U.S. Commerce Department will hold hearings this week on a proposal to impose tariffs of up to 25% on a further $200 billion worth of Chinese goods. China has assured the U.S. that it will retaliate. These measures could be locked in as soon as this October.
Renewed talks may be somewhat encouraging, but there is little evidence to suggest that either side is willing to give the concessions necessary for a concrete agreement. There is a feeling among some in the Chinese leadership that the Trump administration is not negotiating in good faith.
“The Trump administration has made it clear that containing China’s development is a deeper reason behind the tariff actions,” He Weiwen, a former Chinese commerce ministry official recently told Bloomberg.
Unfortunately it is realistic for investors to prepare for continued friction in the trade relationship between the United States and China. China-linked investment vehicles like this ETF should not be relied upon to generate the growth it has in previous years in the current geopolitical environment.
