Stockholm (Ekonamik) – White House Chief of Staff Mick Mulvaney suggested that the Trump administration would know within two weeks whether a trade deal would be struck with China, it emerged Tuesday, as U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are in talks in Beijing with Chinese Vice Premier Liu He to try to find a solution to the ongoing trade dispute between the economic powerhouses.
“[The negotiation] won’t go on forever. I think at some point in any negotiation you realise: ‘OK: we’re close to getting something done so we’re going to keep going,’” Mr Mulvaney said. “On the other hand, at some point you just throw your hands up and say ‘you know this is never going to get anywhere.’ I think you’ll know one way or the other in the next couple of weeks. I think that’s probably fair,” he added.
Mr Mnuchin had said over the weekend that trade talks between the U.S. and China were in the final stages ahead of the week’s meeting. “I think both sides have a desire to reach an agreement, Mr Mnuchin said. “We’ve made a lot of progress.” This round of talks was expected to focus on China’s practice of subsidising its industries as part of the U.S. demand for structural reforms and U.S. president Trump’s move to end waivers allowing China and others to import oil from Iran, which treads into effect on May 1.
While both countries are nearing the stage where a deal could be struck, Mr Mnuchin emphasised that an agreement might – or might not – happen, saying only that both sides desired one. He also did not elaborate on whether talks could be concluded by June or whether a collapse in negotiations would cause the Trump administration to inflict more tariffs on China.
Still, markets and some asset managers are cautiously positive or at least hopeful of a deal. Aberdeen AM found that pan-European equities continued to rise in February amid signs of a U.S.-China trade agreement and reassurances from the U.S. Federal Reserve that no further rate hikes are planned for the first half of the year. RBC Global Asset Management’s Spring 2019 Global Investment Outlook finds that the powerful rebound in stocks since the beginning of the year started from a point of reduced valuations and was fuelled progress in the U.S.-China trade dispute (and central banks’ accommodating policies) and expects the rally to be able to persist as long as earnings meets analysts’ expectations.
Others, such as Pictet AM, are revising their Chinese GDP forecast for 2019 upward from official forecasts following an unexpectedly strong Chinese Q1 with a headline value of US$ 3.18 trillion representing a 6.4% year-on-year increase. “In light of the strong Q1 results and the likely trade agreement between the U.S. and China, we have decided to revise up our Chinese GDP forecast for 2019 to 6.3% from 6.1% previously,” Pictet Senior Asia Economist Dong Chen said recently. (The GDP estimate still falls within the range of official forecasts.)
The main sticking points to an agreement are still how it would be enforced and whether the U.S. would agree to remove the $250 billion in tariffs placed on Chinese products – or how much of that amount. Mr Mnuchin acknowledged progress on an enforcement mechanism that would enable each side to hold the other accountable if an eventual agreement were breached, but the oil sanctions remain a problem for China, which imports large quantities from Iran and “opposes U.S. unilateral sanctions” (U.S. Secretary of State Mike Pompeo insisted ahead of the talks that the end of the oil waivers would not hurt the talks).
A deal may appear to be more urgent from the Chinese side at this point, despite its Q1 outperformance, as the removal of the levies on Chinese goods will be critical for it to sustain performance this year. On the other hand, Mr Trump will be mindful of the possibility of the U.S. economy slowing down before the 2020 election despite its continued strong performance, and of the cost to U.S. businesses and consumers, which already stood at close to $20 billion two months ago. Investors are asking themselves whether the protectionist effort is worth it and are urging a deal, which Mr Trump may be willing to accommodate for political reasons.
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