The most recent round of US-China talks ended on a positive note on January 31. President Trump tweeted, “No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points.”
The US is seeking far-reaching reforms from China and not just lowering the trade deficit. The US said that the trade talks mainly covered seven points. The points include intellectual property rights, China’s cyber warfare, forced technology transfers, the tariff and non-tariff barriers faced by US companies doing business in China, massive state subsidies, industrial overcapacity, “market barriers and tariffs that limit United States sales of manufactured goods, services, and agriculture to China,” and currency manipulation.
After the initial euphoria about a US-China trade deal, realism seems to be taking hold. Last week, President Trump said that he won’t be meeting President Jinping before the March 2 deadline. Larry Kudlow, the White House’s top economic advisor, also pointed to “pretty sizeable” differences.
While the US (QQQ) is seeking wide-ranging reforms from China (TCEHY) (BABA), it won’t be easy for China to agree to all of the demands. While the two sides can reach some sort of consensus on lowering the trade imbalance, the more contentious issues of state subsidies and industrial overcapacity will likely take time to resolve and could be difficult to monitor.
While equity markets (IBM) (MSFT) rallied sharply last month with stocks like NVIDIA (NVDA), Netflix (NFLX), General Electric (GE), and Micron (MU) trading with strong gains, we could see bears like their chances in February.
Read Brace for Volatility: Three Key Deadlines Loom to learn more.