Five minutes after stock markets opened today, US President Trump tweeted “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” On Sunday, the trade deal deadline for a phase-one trade deal will pass, and if no deal has been signed, the US may add additional tariffs. US markets surged to fresh all-time highs amid hopes that a deal will be signed. As part of this deal, 50% of the existing tariffs are set for a rollback. This represents a change in attitude from just weeks ago when Trump stated that he would prefer a deal after the 2020 election.
No Deal Before Trade Deadline
With just three days to go, a deal before the trade deal deadline remains unlikely, but goodwill may avert fresh tariffs. Wendy Cutler, the Former Acting Deputy US Trade Representative, added that “Both sides have said that they are very close, but I can tell you as a trade negotiator that the last mile is always the most difficult. You need a win-win deal that both sides need to be able to go home and show that they got something.” Trump repeatedly ruled out a win-win trade deal.
A meeting between Trump and his advisors is scheduled for later today where discussions on how to proceed Monday are expected. His camp has been divided between more aggressive steps and more patient ones. According to his latest tweet, it appears that tariffs will be delayed to give both sides more time to negotiate. Adding more tariffs on Chinese goods may harm the US consumer more than it would damage the Chinese economy, and could be an additional reason to delay tariffs.
2020 Election
Trump has to worry about the 2020 election. His choices are to remain tough on the tariffs he prefers or to cave to pressures from inside his administration and relax the atmosphere. The US economy is struggling, and Trump is urged to give it time to recover. China is faced with an economic slowdown of its own, and neither side wants to escalate tensions. A delay in tariffs is the most likely outcome once the Sunday deadline passes, as more tariffs will all but end any hopes for a resolution to the trade war. With the 2020 election on Trump’s mind, he may want to delay escalation as long as possible and not place US consumers under more pressure.
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Comprehensive Trade Deal May Be Impossible
A growing number of economists have labeled the phase-one trade deal a meaningless political tool that won't accomplish anything. The divisions between both sides could be too deep to bridge in the current environment, and a comprehensive trade deal may be impossible. The US and China are currently playing for time to give their economies time to strengthen. Chinese data has been mixed, but encouraging, while the US printed many reports suggesting a much weaker economy than expected with the occasional surprise.
Clete Willems, the Former Deputy Director of the US National Economic Council, noted that “Another round of tariffs would likely yield the unreliable entities list from China, further political hardening, and all but end the chances of a deal before the election. I don’t think either side wants that.” The US is also considering more aggressive steps by the Chinese government in retaliation, like its version of the US entity list which sanctions Huawei.
According to Shi Yinhong, Director at the Centre on American Studies at Renmin University and advisor to the Chinese government, “A deal that is implementable must be concrete and detailed, which I don’t think can be concluded within days of December 15. China is unlikely to give a specific commitment on how much US agricultural products it would buy.” Lu Xiang, Research Fellow on US-China relations with the Chinese Academy of Social Sciences, added: “If we see US tariffs on Sunday, it would mean the talks collapsed.”
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