While it should hardly come as a surprise that just two days ahead of a meeting between the US and China seeking to resolve and defuse trade tensions, the two sides – looking to defuse tensions and boost markets – are “exploring a trade deal in which Washington would suspend further tariffs through the spring in exchange for new talks looking at big changes in Chinese economic policy”, that is precisely what the WSJ has reported and what the market is responding to, and providing a modest bid to stocks following the earlier G-20 negative news that Peter Navarro is back on the Trump-Xi dinner list.
As the WSJ notes, “the talks have been conducted, via telephone, for several weeks, and are coming to a head shortly before President Trump and Chinese President Xi Jinping meet for dinner on Saturday at the end of the Group of 20 leaders’ summit in Buenos Aires.”
New talks would focus on what both sides are calling trade “architecture,” a broad term that could encompass many issues the U.S. has wanted Beijing to address, including intellectual property protection, coerced technology transfer, subsidies to state-owned enterprises, and even non-trade issues such as cyber-espionage.
But, as the WSJ cautions, “it is far from clear whether the discussions will produce any agreement.”
Furthermore, it isn’t clear what specifics the U.S. is asking for or what Beijing is willing to entertain. One offer, according to Chinese officials: in return for the suspension of U.S. tariffs, Beijing would agree to lift restrictions on China’s purchases of U.S. farm and energy products.
Such a deal would follow the model of partial agreements the U.S. has cut in recent months with the European Union and Japan, U.S. officials said. In those deals, the U.S. agreed not to levy more tariffs—in those cases, tariffs on automobiles—while the two sides negotiated over specific areas. With Japan, for example, Tokyo agreed that any deal would increase automobile production and jobs in the U.S, while Washington agreed not to press Tokyo for more concessions on agriculture than Japan had previously allowed free-trade partners.
The market reaction was prompt, and after hitting session lows earlier on the Navarro news, the S&P has since rebounded and has cut its losses in half.
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