Chart of the Week

A “MAR-A-LAGO ACCORD”?

Heading into 2025, a further deterioration in US/China trade relations seems to be a strong consensus call.

This would be an extension, and possible amplification, of a decade long trend.

As the chart below shows, the share of US goods imports from China (blue line) has dropped significantly since 2015; from 22% of the total value to just 13%.

Note how Mexico’s share (red line) has risen steadily over the same period.

This partly reflects a strategic pivot by US businesses to rely on supply chains closer to home, but it stems mainly from the tense political environment.

However, it often pays to go against the trend.

Whilst unlikely, there is a chance that US/China trade relations actually improve this year. There would be obvious benefits to both sides.

For the US, it would lower costs for US firms and consumers, offsetting some of the mounting domestic inflationary pressures and boosting the growth outlook.

For China, improved trade terms would help to stabilise its export-dependent sectors, which are becoming increasingly vital to the broader economy given the ongoing challenges in the real estate and financial sectors.

This is a long way from being the most likely scenario, but any talk of conciliation or some form of “Mar-a-Lago Accord” would be well received by markets.