"We expect the ‘Phase One deal’ agreed between the US and China mid-December, to be formally signed mid-January, to be supportive for the Chinese economy, as it puts the tariff tit-for-tat to an end, at least for now, and even leads to some rollback in tariffs," argues ABN AMRO senior economist Arjen van Dijkhuizen.
Key quotes
"The direct effect of these tariff reductions will likely be small, but the truce will help to reduce uncertainty, limit downside risks and restore confidence. In fact, the improvement in PMIs seen over the past months can be partly attributed to rising hopes of a trade deal."
"That said, the deal does not take away all uncertainty. First of all, although the contours of the deal have been sketched, the details of the agreement yet have to be published and the formal signing still has to be done. Second, according to the US, China has agreed to step up imports of goods and services from the US by USD 200bn in two years compared to 2017 levels. From current levels, that would seem quite ambitious; China has not yet confirmed these numbers."
"Third, given that US-China tensions have risen in all aspects of the relationship (not only trade, but also intellectual property, governance, technology transfer, currency management, security/cyber and human rights), they will likely linger and may flare up when the political calculus in Washington or Beijing changes again. Fourth, the US may also resort to other instruments than tariffs (such as more restrictions on strategic exports or FDI) to halt China’s rise as a technology giant. All in all, it remains to be seen whether this Phase One deal will hold, let alone whether both countries would agree on a more fundamental Phase Two agreement."
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