Advertisement
Features

US-China trade truce: both sides back down

China and America have agreed to a “pretend” trade deal, with details are so thin that the Chinese preferred not to call it a “deal” at all. That didn’t stop the markets cheering.

Aerial View of Shanghai  © iStockphotos
Chinese policymakers must be worried abut the state of the economy

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.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Is the bond market wrong about inflation?
Government bonds

Is the bond market wrong about inflation?

The bond rally suggests that markets are sanguine about inflation, but the gold rally suggests inflation is a real threat.
7 Aug 2020
The charts that matter: gold finally sets a new record high 
Global Economy

The charts that matter: gold finally sets a new record high 

As gold surges past its previous high, John Stepek looks at how it's affected the charts that matter most to the global economy.
1 Aug 2020

Most Popular

Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020