It is unlikely that any solution can be found to end the trade war between the United States and China in the form of a trade deal at the G-20 summit in Japan this month, according to J.P. Morgan and Morgan Stanley, even as the trade war between the two largest economies of the world saw their trade spat being pushed up a notch in May.

The potential of the presence of both US president Donald Trump and Chinese president Xi Jinping being present at the summit has made market watchers expect some possibility of a conclusive trade agreement being reached between the two parties.

However, despite their presence, the possibility of Trump and Jinping holding a bilateral meeting at the summit at the end of June could not be confirmed on Sunday by Chinese Vice Commerce Minister Wang Shouwen at a press conference. He only confirmed that representatives from China would be going to the summit in Japan.

But according to analysts from J.P. Morgan and Morgan Stanley, it is unlikely that there would be a trade deal between the US and China in the short term at least given the kind of rhetoric that both the parties have engaged-in in recent weeks and the increasing of tariffs by both parties.

“My personal expectation is no deal. If you look at the position on both sides, you see a significant reduction in degrees of freedom — the commentary out of the Chinese side for specific, effectively pre-negotiating points that must be met,” said James Sullivan, head of equity research for Asia excluding Japan at J.P. Morgan.

“If you look at the U.S. side — very, very hawkish tone — not just from the president but throughout the entire administration … I think that makes it very difficult to see a deal on a short-term basis,” he added.

That sentiment was echoed by Jonathan Garner, Morgan Stanley’s emerging markets strategist. “It’s looking more likely no deal than deal at this point,” he said.

In a surprising move, Trump increased tariffs on Chinese products worth $200 billion imported into the US from 10 per cent to 25 per cent last month. The Trump administration is reportedly now considering whether it is possible to increase the tariffs on the rest of $300 billion worth of other Chinese imports.

In addition, the Chinese telecom equipment maker Huawei was put in its black list by the US Commerce Department which has threatened to put under pressure the core business of the Chinese company – that of telecom network equipment and smartphones, last month.

In retaliation, China increased tariffs on goods. The provoking trade disputes by the US amounted to “naked economic terrorism”, said Chinese Vice Foreign Minister Zhang Hanhui last week. Further, warnings of the possibility of China withholding the export of rare earth metals into the US was made through Chinese sate media as a part of the China’s reply to the increased trade tariffs by Trump.

Garner said that growth of many other countries could be dragged down by in the worst case scenario of the trade war which was similar to the predictions of his firm that the global economy could be sent into recession in less than a year because of the trade war. “The stakes are extremely high now, and with each day and each incoming data point … the global economy is losing momentum really quite rapidly,” he said.

Supply chains “will drag significantly” on spending and profitability around the world because of the uncertainty about the trade war, said warned .P Morgan’s Sullivan on Monday.

(Adapted from CNBC.com)

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