US-China trade truce: both sides back down

China and America have agreed to a "pretend trade deal", says Christopher Balding in Foreign Policy. Donald Trump has lauded a "phase one" trade agreement, but the details are so thin that the Chinese side preferred not to use the term "deal" at all. That didn't stop the markets cheering. Both US and Chinese stocks rose on the announcement, with both America's Nasdaq and S&P 500 up more than 1% last Friday. US stocks recorded their first weekly gain in four weeks. The agreement is "very preliminary", Warren Maruyama of Hogan Lovells told Barron's. "Markets have been extraordinarily gullible."

Both sides have cracked

China's negotiators have their own reasons for avoiding the term "deal", says Bloomberg News. Any final agreement that "doesn't remove the punitive tariffs altogether" would draw unfavourable comparisons with China's 19th-century "unequal treaties" with colonial powers and trigger nationalist vitriol. But that doesn't mean that the Chinese don't want an interim accord. The country's exports and imports shrank more than expected in September and leading indicators "remain grim", says Freya Beamish of Pantheon Macroeconomics. Many analysts had thought that Chinese policymakers would be content to wait for next year's US elections as they "would rather negotiate with somebody less bent on causing havoc". They "really must be worried about the state of the economy".

Decoupling continues

The economic effects of the trade war have been exaggerated, agrees Neil Shearing of Capital Economics. It has probably only accounted for 25% of the slowdown in global GDP in recent years. The "mini-deal" now on the table doesn't even begin to cover deeper disputes about "intellectual property, technology transfer and industrial strategy" between the two sides. Expect the "slow and steady drift towards a more antagonistic" trans-Pacific relationship to continue. Investors should be prepared for this decoupling.