Agreement at the G20: U.S. and China signal Trade War ceasefire

At the G20 summit, U.S. President Donald Trump and China President Xi Jinping agreed to a 90-day tariff-hike truce.  The truce intends to provide a negotiation window for the two countries to settle intellectual property and industrial policy differences. President Trump later tweeted that China would be lowering tariffs on automotive imports from the United States.

The announcements made by both countries have not been identical, Beijing has been characteristically quieter than Washington, fueling some concern as specifics of the forthcoming changes.  The U.S. plans to introduce the 25% tariff if there isn’t progress in the 90-day period. The announcement marks the first meaningful trade deescalation between the U.S. and China, even if only temporary for now.

Also at the G20, leaders of U.S., Mexico, and Canada met for a formal signing of the USMCA (NAFTA replacement). While the formal ceremony may have presented itself as the official acceptance of the document by the three countries, final implementation isn’t going to roll out until at least 2020.   At the time of the signing, the Mexican president was Enrique Peña Nieto, since then, Andres Manuel Lopez Obrador (“AMLO”) has been inaugurated. It looks as if AMLO will continue to honor the deal, but the change in political power only increases chances of disruption. On the U.S. congressional front, discussions of the deal are essentially tabled until 2019, where changes in composition after recent elections may pose a challenge to the president. The Democratic Party will now control the House of Representatives, after 2 years of a Republican controlled Congressional and Executive Branch political tensions will likely manifest in prolonged debate.

The U.S. stock market has improved since both announcements, likely influenced in part by positive sentiments for business if trade tensions subside.

12 September 2018