More volatility ahead amid trade tensions, says Pacific Investment

by Swati Pandey

Trade tensions between the U.S. and China are unlikely to ease soon despite a recent thaw on tariffs, according to Gene Sperling of Pacific Investment Management Co., who warns market volatility is likely to persist.

Sperling, a former director of the National Economic Council, a White House unit that coordinates administration policy, cautioned the recent truce between the world’s biggest economies failed to address underlying structural issues. These include intellectual property rights, technology transfers and market access.

“I don’t see China as being easily resolved,” Sperling said Thursday at a Morgan Stanley conference in Sydney via video link. “Countries don’t want to look like they are being submissive to the United States.” He pointed to Canada, where Mark Carney emerged victorious in the latest election by standing up to President Donald Trump.

“And that’s what can lead to a zero sum game on tariffs, which is that every side feels that they have to respond to this,” he added. “So I think China is going to go on for some time.”

His remarks come as Trump said a trade framework with China has been completed, with Beijing supplying rare earths and magnets “UP FRONT” and the US allowing Chinese students into its colleges and universities. The US and China will maintain tariffs at their current, lower levels following the agreement this week in London. That level is still higher than before Trump took office. 

Sperling, a former economic adviser to Presidents Bill Clinton and Barack Obama and currently a consultant on U.S. economic policy at Pimco, said Trump’s use of tariffs is likely to continue. That will make negotiations with the European Union challenging too, he said.

“Some of the changes that are being asked of a place like EU really go to cultural issues,” Sperling said, referring to Europe’s ban on imported beef treated with certain growth hormones, as well as a digital services tax targeting large multinational tech companies, many of which are based in the U.S.

Trump has considered using Section 891 of the U.S. tax code to double tax rates on foreign firms from countries imposing DSTs, escalating tensions between the U.S. and EU.

All that means trading volatility is here to stay. 

“I’d say buckle in,” Sperling said. “If you’re looking at financial investment now, you have to build in a degree of volatility. It doesn’t mean it’s completely random. It doesn’t mean that you can’t predict. But if you’re looking for a moment of clarity, you’re in the wrong business for the next three years.”

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