Big surprise: The US won’t cut any more tariffs until after the election. Given the complexity of these talks, the odds of further progress on the US-China trade tiff were long to begin with.
After news of the 2020 trade parley stasis broke, stocks went down, with the S&P 500 finishing the session off 0.15%. Stocks had been rallying on, among other things, good tidings on the trade front. Who ever thought this process was on its way to a near-term happy ending, with smiles all around and blue skies? Last year, the market skidded whenever trade prospects looked sour.
Look at it this way: President Donald Trump has gotten what he wanted, a kind-of win on trade that he can take to the voters as he campaigns this year for reelection. News of the phase one agreement on trade has buoyed the US market since late last year, along with Federal Reserve rate cuts, of course.
Yes, the trade has harmed American manufacturing, and the tariffs have affected mainly US consumers. The Chinese can avoid levies on food, which is what America mostly ships them, by going to Brazil for soybeans. But the US has no choice other than paying extra for those iPhones and other goods that China sends us. Still, the damage is limited to pockets of the American population.
Meanwhile, Xi Jinping, China’s supreme leader, has lost little if anything. Economists are upgrading growth forecasts for the country, and the yuan has risen to a five-month high against the dollar.
Xi is using the delaying tactics of a legendary predecessor, Mao Zedong, said Bob Browne, CIO of Northern Trust Asset Management. “It’s talk and fight, talk and fight,” he said. “China depends on the US for trade.”
The interim agreement, slated to be signed Wednesday, cancels a new round of tariffs on Chinese products and halves the ones on $120 billion worth of their goods. Remaining in place are 25% tariffs on $250 billion in Chinese imports to the US. Then there’s the reduced duties on that $120 billion of goods, pared to 7.5%. China didn’t commit to specific tariff reductions, although it vowed to exempt levies on certain items, such as soybeans and pork.
That leaves a lot of work ahead. Beijing has offered vague assent to discussing forced technology transfers from US companies doing business in China, as well as curbs to intellectual property theft.
Whether any of that ever happens remains to be seen. What we do know is that any discussion over these issues await 2021, when Trump may or may not be in office.