US and China on brink of trade deal

Global markets surged to half-year highs yesterday amid reports the United States and China are on the brink of a deal that would end a devastating trade war between the world’s two largest economies.

According to the Wall Street Journal, the US and China are in the “final stage” of completing an agreement, “with Beijing offering to lower tariffs and other restrictions on American farm, chemical, auto and other products and Washington considering removing most, if not all, sanctions levied against Chinese products since last year”.

Reuters reports US President Donald Trump and Chinese President Xi Jinping could seal a formal trade deal during a 10-day window around the 20 March, with administration officials telling the news agency they expect the two leaders to “close” a deal at a summit at Trump’s Mar-a-Largo estate in Florida.

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If true, it would bring an end to a year-long trade war which has seen tariffs imposed on over $350 billion worth of goods, roiled financial markets, disrupted supply chains and provoked fears the actions could exacerbate a wider slowdown in the global economy.

“An end to the US-China trade war, even if only temporary, would be a major win for President Xi and his government, who have been trying to counter a slowdown in the Chinese economy,” says CNN.

As for Trump, the New York Times says “the ability to announce a deal with China would constitute a victory for a presidency rocked by legal investigations and failed nuclear disarmament talks with North Korea last week”.

Yet sources “briefed on the negotiations” told the Wall Street Journal that hurdles remain, and each side faces possible resistance at home that the terms are too favorable to the other side.

According to CNN “there have been some signs of disagreement inside the Trump administration about whether the time is right to make a deal with Beijing”, and while the proposed deal would roll back tariffs on both sides of the Pacific, “it may do little to achieve the substantive changes to China’s economy that the United States initially set out to win”, says the New York Times.

According to Bloomberg News, one of the final sticking points in the negotiations is how soon US tariffs on Chinese goods would be lifted. The financial wire service reports “the US wants to continue to wield the threat of tariffs as leverage to ensure China won’t renege on the deal, and only lift the duties fully when Beijing implemented all parts of the agreement”.

But “this is not sitting well with the Chinese”, CNBC says.

According to Rabobank, there are three possible outcomes from US-China trade talks: no deal, a cosmetic deal that papers over the cracks or a credible deal, the Daily Telegraph says.

Its analyst Richard McGuire believes that the third scenario is “wholly unlikely as it would require China abandoning its ambitions of moving up the value chain and, by the same token, any hope of sustaining growth over the longer term.”

A cosmetic deal that would still provide markets a shot in the arm is the most likely, he concluded.