Global Geopolitical Series: Trump-Xi consensus reached on trade but statements differ

Over the weekend, President Trump of the United States and President Xi Jinping reached a consensus in the ongoing battle between the world’s two largest economies over a two and half hour working dinner after hailing their close friendship. A temporary truce rather than an agreement was reached between the two, where both sides would negotiate over trade and China’s alleged malpractices in forced technology transfer.

The financial market participates cheered the news by pushing equities higher all around the world. China’s Shanghai composite is up 2.7 percent. Hong Kong’s Hang Seng index is up 2.8 percent, while futures are pointing to a higher open in North America.  S&P500 future is up 1.6 percent, while tech-heavy NASDAQ is up almost 2 percent.

However, concerns remain over the differences between the official statements released by the two countries.

China:

• According to China’s statement, both sides have agreed to stop imposing tariffs on goods imported from each other, which means that tariffs on Chinese goods worth $200 billion will not be raised from current 10 percent to 25 percent at the beginning of next year.
• China is willing to import more goods from the United States based on the needs of the Chinese people and to gradually address the imbalance issue.
• Both countries have agreed to open up their domestic markets. Both countries will accelerate negotiations with an aim of withdrawing all tariffs that were imposed and both countries would make mutual visits in due course.

United States:

• The United States has agreed to keep tariffs on $200 billion worth of Chinese goods at 10 percent, which will not increase automatically to 25 percent beginning next year. However, if the negotiations fail to bear fruit in the next 90 days, tariffs would be raised to 25 percent.
• China will agree to purchase a not yet finalized but very substantial amount of agricultural, energy, industrial, and other products from the United States to reduce the imbalance. China will immediately state buying U.S. agricultural products.
• Two Presidents have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and Cybertheft, services and agriculture, which will be targeted to be completed in the next 90 days.

The very omission of the timeline in the Chinese statements and the short time frame of 90 days remains the two major sources of concern.