The 90-Day Ceasefire is Insufficient for Solving Trade Problems
The outcome of the meeting between leaders of China and the United States seemed welcoming to the world. Both sides agreed to take measures to halt temporarily the trade war for 90 days, with the US lifting the tariff from 10% to 25% on some US $200 billion worth goods originally scheduled for implementation on the New Year Day, while China agreeing to buy a “substantial” amount of American goods in agriculture, energy, and industry.
Although this halt of the trade war is somewhat good news to the global capital market, investors should not be too optimistic. The temporary nature of this 90-day ceasefire indicates the ultimate but difficult need of a solutions that bring two fundamentally different trade policies into a balance. In pragmatic terms, the US demanded China to provide realistic details as to how to protect intellectual property. The latter also agreed to list fentanyl (an opioid) as designated medication. The failure of coming to terms on these grounds, among others, within the 90-day period shall trigger immediate effect of the tariff, which was to rise from 10% to 25%.
As the year of 2018 is coming to an end, the capital market will be able to breathe easy for now. However as the difference between world’s two largest economies are so big that structural changes are unlikely to surface within 90 days, investors have to be cautious and follow close steps to what comes next.
Image source: Dan Scavino Jr.