Last Friday, US and China trade negotiators have met for the 13th time since the US imposed trade tariffs on China. The markets were initially buoyed by the news of a “love fest” between the two nations and commodity prices like soybean and cotton soared.
However, the more I read into the “trade deal” and as more information emerged yesterday, this is what I learnt:
- There is no documentation of the details of Friday’s preliminary agreements
- China won’t agree to anything officially and wants to have more meetings
- The December 15 tariffs have not been remove and is set to go into effect unless a full deal is in place as confirmed by Mnuchin.
While President Trump and his administration were celebrating the fact that China agreed to purchase $40-$50 billion in U.S. agricultural products, it appears that there were not a lot of details on the other matters, and those do matter.
I also realised that the Friday’s agreement and reaction was identical to the “agreement” from the G20 Meeting in Argentina on Dec 2018. (see source: https://www.bbc.com/news/world-latin-america-46413196 ) The euphoria lasted for about 48 hours before everything went down again.
Of course, this could not be held solely responsible for the downturn. The Federal Reserve also started to increase interest rates just as the trade war is heating up. This year’s reaction could be different as the Fed had reversed its course. As for me, I would like to see some of the existing tariffs being lifted before calling it as progress.
With both nations facing domestic pressures to close the deal, I really hope they can thrash something out in the coming months. A credible agreement is one which has specific descriptions and mechanisms for it to work realistically. Otherwise, it will be little more than just flowery words.
For me, I shall continue to stick to quality.
“The idea of having a fragile balance sheet for the sake of higher growth doesn’t lend itself to the idea of ownership. A company’s ability to endure and to survive is based on the strength of its balance sheet” – Tony Deden