The US and China agreed to a new trade deal on Friday, at least in principle. Referred to as phase one, it’s a skinny deal that covers agricultural products, technology, and financial services.
It’s not the comprehensive reforms we hoped might be achieved earlier in the year. But given the acrimony and escalation in tensions just a few weeks ago, progress is welcome.
Sigh of relief
Had talks broken down… again, new tariffs would have gone into effect on Tuesday. If history is a worthy guide (and I believe it is), China would have erected new barriers to U.S. goods, and another round of tit-for-tat retaliation would have ensued.
The end result: we would have experienced renewed market volatility. For now, the U.S. and China avoided that pothole.
Investors’s corner
While geopolitical headlines can create volatility, economic fundamentals drive US equity prices over the medium- and longer-term. However, this year headlines have had a much greater impact on market activity.
We witnessed tensions derail stocks in May and in August. While modest economic growth cushioned the downside, the fundamentals have taken a backseat.
With a truce in place, might investors rest a little easier? Let’s root for progress, as phase one talks tackle the nitty-gritty.
For example, China promises to buy $40 to $50 billion in US agricultural products. That’s a lot of soybeans, pork, and corn. Yet, a time frame was not specified.
Still, phase two talks need to move forward. Momentum and smiling public faces must translate into real progress behind the scenes. It may be easier said than done.
And, let’s not forget that a new round of tariffs scheduled to go into effect on Chinese imports in December remain in place. For now, a US-China trade deal is a welcome relief from the unending acrimony we’ve experienced.
Late-week headlines finally proved to be correct. Stay tuned.