The positive tone continues
China-US trade tensions have dominated markets for the past year but we could have a solution this month.
Shortly after markets opened, the WSJ reported that officials are closing in on a deal that will be concluded around March 27 at Mar-A-Lago.
1) US tariffs
The deal would remove “most, if not all” of the US sanctions levied against China in late 2018.
2) China tariffs
China would lower tariffs and other restrictions on US agriculture, chemicals, and other products, including cutting auto tariffs from 15%.
3) Removing foreign ownership restrictions
US companies are often restricted from operating in China, especially in insurance and financial services. Expect a faster timetable to open up these industries, but nothing immediately.
4) Chinese purchases
China’s strategy throughout talks has been to pledge to purchase more US goods in order to narrow the trade deficit. This will focus on agricultural products now with pledges to buy LNG around 2023.
5) Intellectual property
Talks continue regarding protection of IP and last week Robert Lighthizer said that issue alone makes up 30% of the current working document on the agreement.
6) Enforcement
This is the major remaining snag with “many details still needed to be worked out”, according to the NYT. The US wants the ability to unilaterally impose tariffs if US companies complain, China has balked.
Another factor that’s moving markets is a report that China plans to cut its VAT for manufacturers by 3 percentage points with an announcement coming as soon as this week. It’s part of a broader effort to stimulate the economy.
What’s expected? Here’s what Goldman Sachs is looking for: “Our base case is that an agreement would leave some US tariffs in place, potentially lifting them in stages as various commitments under the agreement have been met. We nevertheless expect some US tariffs to remain in place into 2020,” Goldman Sachs wrote a report today.
