Will the positive momentum on US China Trade Talks continue?

Team Veye | 25-Feb-2019 positive momentum

The US and Chinese negotiators met for the 5th consecutive day on Saturday as the two sides race against a March 1 deadline to reach an agreement and prevent a further escalation in their trade war. The fourth round of negotiations was extended through the weekend after both sides reported progress in narrowing differences.

President Donald Trump said on Friday that he will consider delaying a March 1 deadline to reach a trade deal before he would escalate his tariffs on $200 billion in Chinese imports. Trump told reporters that he would "certainly consider" an extension if trade talks are going well. He said that talks between China and the United States will be extended by two days to give the countries more time to resolve their trade dispute. The two economic powers are engaged in a standoff that has worried financial markets and likely weakened the global economy. Extending the deadline would mean putting on hold a scheduled increase to 25% from 10% on $200 billion of Chinese imports into the USA.

That would prevent any worsening of a trade war that has already disrupted commerce worth hundreds of billions of dollars of goods, slowed global economic growth and spoilt the markets. Trump and U.S. Treasury Secretary Steven Mnuchin said that the two sides had reached an agreement on currency issues but did not give details. US officials have long argued that China`s yuan is undervalued, giving China a trade advantage and partly offsetting U.S. tariffs.

In parallel, China committed to buy an additional 10 million metric tons of U.S. soybeans. Reuters had reported last week that both sides were drafting memorandums of understanding (MOUs) on cyber theft, intellectual property rights, services, agriculture and non-tariff barriers to trade, including subsidies. 

On Friday, Trump stated that he did not like MOUs because they were short term, and he wanted a long-term deal. An industry source briefed on the talks said both sides have narrowed differences on intellectual property rights, market access and narrowing a nearly $400 billion U.S. trade deficit with China. But bigger differences remain on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft.

There was no agreement on the enforcement mechanism, either. The United States wants a strong mechanism to ensure the Chinese reform commitments are followed through, while Beijing insists upon what it calls a "fair and objective" process. 

Trump stated that the biggest decisions could be reached when he meets with Xi, probably in Florida next month, and that they may extend beyond trade to encompass Chinese telecommunications companies Huawei Technologies and ZTE Corp.

Our analysts reckon that Trump has started portraying a softer side on the issue in contrary to his earlier tough stand but this approach could rather be taken as diplomatic as he seems quite firm on his demand at the same time. To summarize, as of now there doesn’t appear to be an immediate risk that could impact the positive momentum in the stock markets across the globe. The picture would be clear this week with a joint statement expected from both the countries but will be clearer following a meeting between Trump and Xi Jing Ping in Florida next month.       


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