In a matter of hours, expected early Washington time, US President Biden will be speaking by phone with Chinese President Xi, about China exerting pressure on Russia to end the war.
If only it were that simple.
The reality is that China remains a strong friend of Russia, while at the same time holding discussions to seek a peaceful end to the conflict. This is a long way, however, from the acquiescence of China to the foreign policy wishes of the United States. Such an outcome is entirely unlikely.
What may be achieved is President Xi confirming with President Biden that China will use all its diplomatic and business contacts with Russia to move Russia toward peace. This is the best the US could possibly achieve.
If, as Secretary of State Blinken has suggested, the US is hoping to get China to align with the US on this issue, then we are most certainly headed down the path of the US applying new and stern sanctions against China.
US sanctions against China on this issue may well be a step too far
Certainly, at the diplomatic and economic levels, but also for financial markets.
The strong stock market rally of the past three days could completely melt away over-night, should the US later in the day announce renewed tough sanctions on China. It would seem to many to be expecting too much.
This is perhaps the most important consideration of all: The global economy has experienced shock after shock since the start of Covid-19.
Can it really cope with an already slowing US and China economies, an almost certain new recessionary period in Europe, unheard of price shocks across energy and food, and now another wave of sanctions and disruption of business and trade between the world’s two largest economies?
These are difficult times. Traders and investors should be immediately aware of the risk this key historic phone call poses. It is a telling moment.
Another tabling of sanctions against China over Ukraine could be the final straw that breaks the back of China-US relations.
The geopolitical nature of the world has already changed forever. We will soon know if it going to get even worse.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
