So, Beijing and Washington pulled it out of the bag, securing a ‘phase one’ trade deal just in time to avoid the scheduled tariff hikes on Sunday. However, as with every attempt at solving the conflict, certain details remain unclear.
First and foremost, the deal hasn’t actually finished being translated. Which means, despite US trade representative Robert Lighthizer insisting that it is ‘totally done’, there will be some routine ‘scrubs’ to the text – not the most reassuring state of affairs given how quick to anger both sides are.
The US agreed to one of China’s key red lines, i.e. rolling back pre-existing tariffs. However, that reversal has been described as ‘minimal’ – 25% tariffs will be maintained on around $250 billion in goods, while only $120 billion will see the charges reduced to 7.5%.
As for Trump’s key demands, China will now reportedly purchase an extra $16 billion in agricultural goods per year, on top of the $24 billion already pencilled in, taking the total in 2020 and 2021 to at least $40 billion. The President himself said he thinks ‘they’ll hit $50 billion’, and that they’ve ‘already stepped it up’.
However these figures have been greeted with scepticism, if just because of how steep that increase would need to be on historical purchases. In total, including agricultural, manufactured and energy products, the deal would dictate China buys an additional $200 billion in American goods.
Another potential sticking point down the road could be the requirement for China to make ‘structural reforms and other changes to its economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange’ – a vast swathe of significant adjustments in exchange for a relatively minor reduction in tariffs.
All in all, the sentiment seems to be that this deal isn’t the trade war-ending agreement the markets are actually after. Instead it could unravel at the slightest provocation.
Nevertheless, it is better than the alternative. And that fact allowed the European indices to open strong, ignoring a milquetoast Asian session. The FTSE jumped another 90 points, hitting 7440 for the first time since the start of August. The DAX and CAC, meanwhile, rose 0.7% apiece. As for the Dow Jones, a 0.2% increase this afternoon would keep it above 28200, if not at a fresh all-time high.
Elsewhere the pound continued to indulge in some post-election growth, rising 0.3% against the dollar and 0.2% against the euro. It has a busy week of data to test those gains, however. Monday has the flash manufacturing and services PMIs (and the latest bank stress test result), followed by the jobs report on Tuesday, inflation figures on Wednesday, and retail sales on Thursday, a day that also sees one of Mark Carney’s few remaining appearances as Bank of England chief. Finally Friday wraps up the final full trading week of 2019 with the last look at Q3 GDP.
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