Q: Can we expect anything meaningful to come out of the 90-day talks period between China and the U.S.?
A: Markets have had a roller coaster ride this week, but it’s important to recognise that at least some progress has been made. Pre-G20, the default position was that the global economy would be burdened with a hike in U.S. tariffs on $200B of Chinese imports to 25% from 10% currently, with Mr. Trump threatening to impose tariffs on all Chinese goods. That would have been the tipping point into all-out trade war. After the G20 dinner, a January tariff hike is no longer the default and both sides appear at least to want to talk again.
Markets have been roiled since then, as it became clear that the U.S. and China were presenting the dinner very differently to their respective domestic media. Mr. Trump’s tweets on Tuesday were then shocking to people as they appeared to backslide, as well as demonstrating a fundamental failure to understand what tariffs do. Since then, the Chinese authorities have taken several steps to bring their portrayal of the truce closer into line with that of the White House, and made some concrete moves on protecting intellectual property rights.
Going forward, we can’t muster any strong degree of conviction, but it seems as though both sides are now more amenable at least to preventing further escalation, and critically Mr. Trump has been weakened by the U.S. mid-term results. 90-days is too short to agree a meaningful deal, but the most reasonable bet at this stage is that the talks will receive an extension, as Mr. Trump has alluded to in his tweets. Looking further down the line, however, while scope remains for progress on IP theft, non-tariff barriers and other key U.S. concerns, if a bilateral trade deficit with China is truly a sticking point for Mr. Trump then we don’t hold out much hope. Similarly, looking through the ups and downs of the trade tensions, the fundamental pressure on the RMB is for depreciation.
Freya Beamish, Chief Asia Economist
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