Friday , December 14 2018
Home / Perspectives Pictet / US and China reach tariff truce

US and China reach tariff truce

Summary:
But signs already point to divergence in interpretation.A temporary trade truce was agreed between US President Donald Trump and China’s President Xi Jinping at a dinner during the G20 meeting this weekend. As part of this truce, the tariff rate on USD200 billion of Chinese imports will stay unchanged at 10% up to 1 March, instead of increasing to 25%, as planned, in January.Deferring the hike in tariffs is a way for the Trump administration to keep pressure on China to discuss wide-ranging bilateral issues on a range of issues, including forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, trade in services and agriculture, which all remain deep-seated concerns for the US. Another highlight of the meeting was President

Topics:
Thomas Costerg considers the following as important: , , ,

This could be interesting, too:

Nadia Gharbi writes Large downward revisions to the Swiss National Bank’s inflation forecasts

Nadia Gharbi writes ECB: still broadly confident, but caution increasing

Thomas Costerg writes Stagnant US trucker wages raise questions about macro theory

Laureline Chatelain writes 2019 US credit outlook

But signs already point to divergence in interpretation.

A temporary trade truce was agreed between US President Donald Trump and China’s President Xi Jinping at a dinner during the G20 meeting this weekend. As part of this truce, the tariff rate on USD200 billion of Chinese imports will stay unchanged at 10% up to 1 March, instead of increasing to 25%, as planned, in January.

Deferring the hike in tariffs is a way for the Trump administration to keep pressure on China to discuss wide-ranging bilateral issues on a range of issues, including forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, trade in services and agriculture, which all remain deep-seated concerns for the US. Another highlight of the meeting was President Trump’s upbeat tone including his reference afterwards to an “extraordinary meeting”. The White House’s statement that both presidents had “reached important consensus” was further testimony to the positive tone.

But the trade truce remains fragile. The devil will be in the negotiation details, as there is reason to believe the two parties do not quite meet over the finer details of the deal: pointedly, no joint statement was released after the meeting. Furthermore, the statements that the US and China issued separately showed material divergences, with the Chinese statement making no mention of the 90-day deadline on the threatened 25% tariff increase. We also remain concerned that US anxiety about China’s ‘Made in China 2025’ industrial policy could handicap the trade negotiations. Neither statement made a reference to “made in China 2025 or the role of China’s state-owned enterprises in that policy.

We remain of the view that the tariff rate could go up to 25% at some point in 2019, even though we think both sides will keep negotiating. Since the issues at stake are deep seated and go beyond trade, talks could continue for months, if not years. From an equity standpoint, the deal is a step in the right direction and buys some time for investors and is likely to offer support for equity markets as we move toward the end of the year. But uncertainty is not fully removed, meaning market volatility may remain elevated in 2019.

US and China reach tariff truce

Thomas Costerg
Thomas covers the US and Canadian economies from New York. He was previously based in London, covering the UK and the euro area. Thomas started his career with Lehman Brothers in London in 2007 and also worked at a Paris-based private bank and asset manager. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

Leave a Reply

Your email address will not be published. Required fields are marked *