China Trade Deal to be Signed: Sell the News?

  • Yesterday, President Trump tweeted that he will sign phase one of the US-China trade deal on January 15. The trade deal helped propel markets in the fourth quarter of 2019.
  • But there is still a lot of uncertainty as to what all will form part of the phase one trade deal. Given the background, would it be apt to sell the trade deal news? We’ll explore that in this article.

Phase one of the US-China trade deal

The countries announced the broad outline of phase one of the US-China trade deal in October. In a nutshell, the comprehensive trade deal had some contentious issues. So, the two countries decided to split the trade deal into phases. In December, the two sides eventually agreed to the trade deal but still few details emerged. For instance, there is still no clarity on whether there would be a hard number on China’s proposed purchase of US goods.

Also, while the two countries agreed to phase one of the trade deal, they still have to formally sign on the dotted line. Meanwhile, yesterday, US President Trump tweeted that “I will be signing our very large and comprehensive Phase One Trade Deal with China on January 15. The ceremony will take place at the White House. High level representatives of China will be present.” Also, he added that he would visit China shortly to commence talks on phase two of the trade deal.

China hasn’t been too enthusiastic

To be sure, President Trump has maintained an aggressive stance on the China trade deal. From calling himself a “Tariff Man” in December 2018 to increasing tariffs on Chinese goods in May 2019, Trump has established his tough stance on China’s trade policies. That said, last month for possibly the first time, Trump said that the US needs a trade deal. All this while, Trump has said that China needs the trade deal badly.

Incidentally, even now while we see a sense of excitement from the US, China’s reactions to phase one of the trade deal have been quite circumspect. It is worth noting that Chinese President Xi Jinping won’t be traveling to sign phase one of the trade deal. China’s Vice Premier Liu He will likely represent China while signing phase one of the trade deal.

Should you sell the trade deal signing news?

Now, let’s drill down to the key question: should you sell the news of the phase one trade deal being signed? In my view, phase one of the trade deal looks fully priced in. If anything, there could be some negative surprises when the final draft is released. If we don’t see concrete enforceable numbers, opponents will criticize it.

In any case, given the upcoming presidential elections, it would be fair to see a Democrats taking a tough line on trade. Incidentally, the USMCA was held for over a year as the Democrats wanted an even favorable deal. Once the final draft of phase one of the China trade deal is released, we might hear voices of discontent if the deal does not give the US a lot of benefits.

Stock markets

Also, US stock markets had a strong 2019 and the Dow Jones Index (DIA) and the S&P 500 (SPY) hit fresh highs. We’re entering into 2020 with a lot of optimism, most of which is already priced in. A lot has to go right this year to fuel the stock markets. This is unlike 2019 when we entered the year with a somber mood. However, a series of positive developments helped fuel the rally. Read The 2019 US Stock Market Crash that Never Came! for more analysis.

Also, from China’s perspective, the trade deal with the US could serve as a template for other trading partners. Notably, several of China’s trade partners criticized its trade practices. They lack the muscle to take China head-on with tariffs as the US did. Nonetheless, they might increase the pressure on China to address the trade deficit issue. Read China: Resolving the Trade War Could Open Pandora’s Box for more analysis.