Expect a photo op and a 'mock deal' at the Trump-Xi meeting — not a long-term truce, says economist

  • There will be temporary market relief from the much-touted meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping at the G-20 in Buenos Aires, Argentina, said Bo Zhuang, chief economist and director of China research at TS Lombard.
  • However, trade tension will continue to escalate.

Expect a photo opportunity, a "mock deal," and temporary market relief from the much-touted meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping at the G-20 meeting, an economist said on Friday.

"We don't think this deal will be engineering a long-term truce between the two countries," Bo Zhuang, chief economist and director of China research at TS Lombard, said of the meeting in Buenos Aires, Argentina next week.

Zhuang told CNBC he expected a "photo op" and a probable "mock deal" from the meeting between the leaders of the world's two largest economies, "which means there will be temporary market-positive feedback from that."

But trade tensions will continue to escalate, he added.

China's economy will be hit by the trade war, with real GDP growth getting shaved by 0.5 to 0.7 percentage points from the beginning of 2019, he said.

Zhuang said China doesn't want to provoke further escalation in bilateral relations with the U.S., but Beijing may actually let the Chinese yuan weaken should the tariff fight continue.

As for the risk of being labeled a "currency manipulator" should the Chinese yuan decline further, Zhuang said there appeared to be little downside risks from that.

"Everything has already happened i.e. putting in tariffs, negotiations. Trade war was the worse case scenario even before being labeled a currency manipulator," said Zhuang.