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Are the US and China Inching towards a Trade Deal?

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Trade deal

According to Reuters, citing unnamed US government sources, “China has delivered a written response to U.S. demands for wide-ranging trade reforms.” Notably, the US-China trade talks were on a virtual hold for a few months before mid-term elections.

Since the mid-term elections, we’ve seen some traction in the US-China trade talks. Earlier this month, President Trump and President Xi Jinping had a phone call. The two sides are contemplating a meeting between the two leaders on the sideline of the G20 meeting.

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China

As we note in the previous part, the trade war seems to be taking a toll on consumer and business sentiments in China (FXI). There has been a slowdown in discretionary and luxury good sales in China, which is reflected in falling car sales. The business sentiment has taken a beating. However, Alibaba’s (BABA) record Singles’ Day sales showed that it isn’t all gloomy in China. Read China’s Slowdown: How Severe Is It This Time? to learn about the Chinese economy’s various headwinds.

United States

In the United States (SPY), while the overall economy has looked strong, there has been widespread opposition to the tariffs. Companies including Walmart (WMT) and Amazon (AMZN) have opposed the tariffs. While there are pockets of support for President Trump’s trade rhetoric against China, more tariffs on Chinese goods would mean higher costs for US consumers—something President Trump might not want to risk. More tariffs could also pressure US equity markets, which face several headwinds.

There appear to be enough incentives for the two sides to look for middle ground in the trade talks. However, we’ll have to wait and see whether the US and China can reach an amicable solution to the trade war.

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