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US/Sino phase-one deal: If phase one deal is implemented well, Hu Xijin holds optimism for later half of 20th century

Markets are geared up for the signing of the so-called 'phase-one' trade deal. Traders are waiting for Chinese Vice Premier Liu He to arrive in Washington this week where the detail of the accord will no doubt be released via the various media channels and this is where the risk lies for investors, overall committed within the hysteria. 

The first key deal between China and the US amid their tensions is a trade deal, not an arms-control deal. If phase one deal is implemented well and there are follow-up agreements, the first half of the 21st century will be clearly different from the later half of 20th century – 

Hu Xijin, The Chief in Editor for The Global Times has recently tweeted. However, traders should be wary about the exuberance in markets which we have seen since the various announcements of confirmations that a phase one deal was in the making and due for signing into law. After all, the US has reserved the right to reinstate or slap more tariffs if China does not meet the commitments of deal. 

What we know, so far, is that the deal will involve some tariff relief, and the key detail would be the timing of the expected rollbacks. The US requires increased Chinese purchases of US agricultural goods and changes to intellectual property and technology rules – Thus far, however, Beijing has not confirmed those purchase commitments and both sides have changed their position multiple times during the 18-month negotiations.

Market implications

The phase one deal will leave in place tariffs on about $370 billion worth of Chinese imports per year which will be addressed in Phase 2 negotiations, which the Trump administration wants to launch this year, covering thornier issues untouched by the Phase 1 trade deal, including Beijing’s heavy subsidies to Chinese state-owned enterprises and restrictions digital trade and cybersecurity issues. Washington and Beijing have agreed to hold semiannual talks in targeting to resolve disputes and push for reforms, so we should expect a bumpy road map which could lead to risk-off flows – hence a possible 'sell-the-fact' outcome which would ultimately weigh on risk appetite, global equities and support gold and the yen. 

 

 

 

 

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