Friday last week ended with a huge bang. It was announced that Trump has agreed to a new Phase One deal that would effectively put the trade war on hold. The news came at the end of the day, so the stock market rose sharply, but didn’t have too much time to stretch its legs. Many investors were expecting the market to continue towards a massive march upward today. That was until China appeared to throw a little cold water on the whole thing.
On Monday, China said there’s still a bit of work to do before the two largest economies in the world can hammer out the new trade agreement. There is certainly a lack of trust between the two sides. President Trump, at one time, declare the trade war to be over, only to throw on more tariffs a few days later. So, that means Beijing is being cautious.
“While the negotiations do appear to have produced a fundamental understanding on the key issues and the broader benefits of friendly relations, the Champagne should probably be kept on ice, at least until the two presidents put pen to paper,” wrote the state-owned China Daily. Essentially, there’s still a lot of time between now and December for talks to fall apart.
“Based on what I know, China-US trade talks made breakthrough last week and the two sides have the strong will to reach a final deal. Initial statement of the Chinese side is moderate,” he tweeted Monday morning. “This is China’s habit. It doesn’t mean China’s real attitude is not positive.”
The New Trade Deal
On Friday of last week, both China and the U.S. agreed on principal on a new trade deal The whole thing is expected to take about 5 more weeks to complete. That doesn’t mean there aren’t benefits being played out right now. China has said they will once again start buying more U.S. agriculture. This is good news for struggling farmers as we enter the harvest season.
China has also stated they will be making reforms on how they deal with intellectual property. That was one of President Trump’s biggest complaints. In return, the U.S. said they will not raise more tariffs. Trump was threatening to increase Chinese tariffs from 25% to 30% by October 15th. Now that it has been put off, the two sides seem to be warming up to increased talks.
Due to China’s careful optimism, stock futures were a bit more muted than expected on Friday. We’ll see how this deal plays out in the next few weeks. Hopefully a deal can be done and the trade war will be over before the holiday season gears up.
