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Trump, Xi Jinping trade war, tariff delay deal is short-term US-China fix

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  • US President Donald Trump and Chinese President Xi Jinping
    agreed to a 90-day delay of any new tariffs at a dinner Saturday.
  • It marked the most substantial progress toward ending the
    US-China trade war.
  • The deal was cheered by US business groups and led to a jump
    in stocks.
  • But the two sides remain far apart on a final deal, and there
    are substantial differences between the Trump administration’s
    and Beijing’s outlooks.
  • According to analysts, it is unlikely that a broader deal is
    reached in 90 days, and the possibility for an escalation of the
    trade war remains.

The US and China took the most significant step toward ending
their trade war Saturday, as US President Donald Trump and
Chinese President Xi Jinping
agreed to a temporary economic ceasefire
.

  • The deal reached at the G20 summit in Argentina includes a
    90-day delay in the imposition of new tariffs.
  • The US agreed to also pause the scheduled increase of tariff
    rates on $200 billion worth of Chinese goods from 10% to 25%.
  • China agreed to make purchases of US agricultural and energy
    goods, and the two sides said they would work to resolve
    differences on key structural issues like China’s theft of US
    intellectual property.

Trump touted the agreement with Xi on Twitter, calling it a good
deal for American farmers and businesses.

My meeting in Argentina with President Xi of China was an
extraordinary one,” Trump tweeted. “Relations with China have
taken a BIG leap forward! Very good things will happen. We are
dealing from great strength, but China likewise has much to gain
if and when a deal is completed. Level the field!”

A welcome reprieve

While there are plenty of issues still left to resolve in the
longer-term, the delay in further tariff actions was applauded by
US business groups and investors.

It is clear the administration has heard the voices of
those negatively impacted by existing tariffs,” Matthew Shay, CEO
of the National Retail Federation, said in a statement. “We hope
this 90-day tariff pause will lead to a positive resolution that
removes tariffs altogether and improves US-China trade
relations.”

Other industry groups hit by the tariffs, ranging from tech
to farming, also welcomed Trump’s deal. But many urged the
president to continue to try and reach a long-term agreement to
end the trade war.

The markets also gave the delay a thumbs up, with stocks in
both China and the US making solid gains on Monday.

Opposing views of the same meeting

But the meeting leaves many questions unanswered. Among those
questions is what exactly was agreed to in Saturday’s meeting.

The statements from the Trump administration and Beijing
following the dinner
offer substantially different interpretations
of what the two
sides agreed to, which raises questions over how sustainable the
ceasefire will be:

  • For example, nowhere in the official statement from China is
    there a mention of the 90-day deadline, and Chinese state media’s

    references to the deadline
     attribute the idea to the
    White House.
  • Differences on China’s preferences of US goods and the
    timeline for a trade-deficit reduction differed.
  • Trump’s Sunday night declaration that China agreed to lower
    tariffs on American-made cars was not mentioned by Beijing.

Li-Gang Liu and Xiaowen Jin, economists at Citi, said the US was
more focused on long-term changes to China’s economic policies,
while Beijing’s statement kept its eye focused on shorter-term
fixes that would reduce the US-China trade disparity.

“Comparing the official statements, we find that the US stresses
more on China’s structural reform issues on forced technology
transfer, IP protection, non-tariff barriers, cyber intrusions
and cyber theft, services and agriculture, while China continues
to highlight its willingness to increase imports from the US to
reduce the trade imbalance as well as open its markets wider for
foreign participation,” the economists said.

A short-term fix

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said
the short-term deal was a “face-saving measure that allowed both
sides to come away with wins for their domestic audiences.”

“The agreement between Presidents Trump and Xi at the G20 is a
deferment of disaster rather than a fundamental rebuilding of the
trading relationship between the US and China,” Shepherdson said.

Given the substantial number of issues still left to be resolved
— from IP theft to Chinese support for state-controlled
corporations — a 90-day window is far too short to reach a broad
agreement, said Ed Mills, a policy analyst at Raymond James.

“If we have not been able to reach an agreement in the last eight
months that increases market access and lowers tariffs, it’s
difficult to see a 90 day deadline significantly changing the
Chinese position on key issues,” Mills said.

Such differences are unsurprising after a brief dinner
(with translation) where each side tends to see and hear what
they want,” added Chris Krueger, a strategist at Cowen Washington
Research Group. “Still, all together, it is hard to imagine that
a comprehensive agreement can be reached in 90 days that can be
credible, monitored, and enforced.”

This could lead to another punt, similar to Trump’s delays
on imposing the steel and aluminum tariffs on allies, Krueger
said. But even that may not be enough time to get a long-lasting
deal together.

Negotiations are set to kick off in mid-December, when Chinese
officials come to the US to meet with US Trade Representative
Robert Lighthizer. But while the discussions are encouraging,
there is a real chance the tariffs on the $200 billion worth of
goods get a boost to 25% come March.

“President Trump is now directly involved in the dealmaking
process, increasing the sensitivity around the final outcome,”
Mills said. “We see it as somewhat to very likely given these
dynamics that negotiations begin to fray and the threat of a
tariff hike to 25% with an additional tariff package as further
leverage reenter market considerations.”

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