Trump and Xi serve up trade war truce comfort food
Ceasefire deal over dinner eases US-China tensions and global fears, as well as boosting major Asian markets. But will it last?
The meal was sumptuous, the wine flowed and the words were reassuring. But now comes the hard work after a trade war truce was hammered out between United States President Donald Trump and China’s head of state Xi Jinping at a dinner in Buenos Aires at the weekend.
By agreeing to a 90-day ceasefire and freezing new White House-planned tariffs to allow for a series of talks to take place on a range of key issues, the early foundations of a deal have been laid.
Yet solving Washington’s problems, such as intellectual property violations, cyber theft and Beijing’s state-backed economic model, will take patience and diplomacy.
As an editorial on Monday in the China Daily, the leading English-language newspaper, pointed out:
“No magic wand has been waved to make the differences between the United States and China vanish overnight. But the highly anticipated talks in Buenos Aires have produced a welcome consensus that the two sides will work on ways to resolve their differences.
“If they can respect each other’s core interests and engage in equal and earnest consultations, they can expand the scope of their common interests and usher in brighter prospects for their relations. And that would be to the benefit of everyone.”
Xi’s government has offered sweeteners to defrost what has become an economic Cold War.
In exchange for putting on hold increased tariffs on Chinese imports worth US$250 billion which were penciled in for January 1, Beijing has promised to buy more US agricultural goods and products.
Similar proposals have been on the table since last summer.
China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.
— Donald J. Trump (@realDonaldTrump) December 3, 2018
Still, one new development after the Group of 20 discussions was Trump’s late-night tweet, saying that China had “agreed to reduce and remove” duties on American cars from the current rate of 40%.
“[They have] agreed to reduce and remove tariffs on cars coming into China from the US. Currently, the tariff is 40%,” he tweeted without providing further details.
While Beijing has yet to make an announcement on the decision, this would help reverse slowing sales in the world’s largest auto market.
It would also help boost global car manufacturers in the US such as Tesla, BMW and Daimler. They have all seen exports to China stall amid rising trade tension.
Last year, the country imported vehicles worth $51 billion with more than a third coming from North America, China’s Passenger Car Association revealed.
Again, this is a move in the right direction but the road to a lasting deal will be littered with potholes and could break down.
“China will still need to prepare for the worst scenario of a ‘decoupling’ of the Chinese and American economies, in particular in the high-tech sector,” Wang Yong, the director of the Center for International Political Economy at Peking University, said, adding that Beijing faced an increasingly hawkish Trump administration.
A more upbeat assessment was published in the state-owned Global Times, which is run by the People’s Daily, the mouthpiece of the Communist Party.
Outlining the CCP view in an editorial on Monday, it said:
“The progress made at the talks in Buenos Aires is of momentous significance. It is hoped the agreement reached on Saturday will be implemented by the two sides and Chinese and American working teams will meet the expectations of their leaders [by] normalizing trade relations between the countries.
“The Chinese public needs to keep in mind that China-US trade negotiations [will] fluctuate. China recognizes that the rest of the world does things differently [when it comes to reform and opening up]. As that picture is getting bigger, we can accept those differences while acknowledging them peacefully, and be more active and open-minded in solving problems through interaction.”
Initial reaction to the 90-day truce buoyed major Asian markets after the weekend break.
The Shanghai Composite Index jumped 2.57% to close at 2,654.80 while Shenzhen surged 3.27% to end at 1,381.55. In Hong Kong, the Hang Seng rose 2.5% to finish at 27,182.04.
Elsewhere, Japan’s Nikkei 225 edged 1% higher while South Korea’s Kospi gained 1.6% and Australia’s ASX 200 closed 1.84% up.
“This is probably the best case scenario that markets were hoping for,” Rakuten Securities Australia, a brokerage based in Sydney, stated in a note.
But lingering doubts remain about the strength of investor sentiment.
“Whether we will see further de-escalation or whether it is temporary reprieve continues to be very much up to a political decision in Washington DC – that will continue to make this uncertain,” Louis Kuijs, the head of Asia economics at Oxford Economics, said.
Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, also felt that the outlook remained uncertain. “We are not optimistic of a speedy resolution of [US-China] frictions,” he said in a note. “China is unlikely to do more than tweak its ‘Made in China 2025’ plan that so irks the US government.”
Serving up a palatable compromise will certainly be more difficult than the five-star feast rolled out at the G20. ‘Comfort food’ could end up being off the menu.