On the surface it seems China and the US have reached some sort of accommodation to try and take the sting out of their trade dispute, but according to the Financial Times and other reports there’s no real agreement – just a series of agreements, with one major sticking point left unmentioned.
For Australia, which is one of the economies most exposed to China, the tentative agreement is good news and should see a change in stockmarket market sentiment today from the gloom that was around on Friday.
Instead of a weak statement after the 30 point fall in the overnight futures market on Friday night, the ASX could see an more upbeat session later today.
The AMP’s Chief Economist, Dr Shane Oliver reckons the US-China trade talks with China’s Vice Premier Liu He have proved “constructive” with China pledging to reduce its trade surplus with the US, buy more US goods and services and toughen intellectual property laws. He says a trade war has likely been averted. “This is very positive.”
"There is a long way to go to work out the details (with the US sending a team to China to work this out) but it’s clear that the US and China have started a constructive process to resolve their differences and according to Vice Premier Liu have agreed to stop “slapping tariffs” on each other. The risk of a growth debilitating trade war between the US and China has now subsided substantially,” Dr Oliver wrote.
The Financial Times reported in a similar vein “Chinese officials have indicated their willingness to buy more US exports but stopped short of accepting US President Donald Trump’s demand for a $200bn reduction in their bilateral trade surplus, as the two sides failed to agree on relief measures for a Chinese telecommunications company hit by crippling US sanctions.
"In a joint statement released on Saturday the two sides said they had ageed on the need for “effective measures to substantially reduce” the US $337bn annual trade deficit with China. They said that after two days of “constructive talks” China had agreed to “significantly increase” its purchases of US goods and services and on the need for “meaningful increases” in US agricultural and energy exports to China.
"Beijing had agreed, they said, to amend relevant laws and regulations, including its patent law, to address US intellectual property complaints that have fuelled Mr Trump’s recent threats to impose tariffs on up to $150bn in imports from China. They also pledged to continue engagement to resolve their differences. Separately, China’s top envoy, Liu He, told state media that both sides had agreed not to go ahead with imposing tariffs on each other, the state-run Xinhua news agency reported.
But there seems to be a major sticking point – the fate of Chinese telecommunications equipment maker, ZTE. Media reports pointed out that Saturday’s vague statement did not mention ZTE. There’s speculation that domestic US pressure forced the Trump administration to drop or ignore comments last week from the President that ZTE would not be subject to the stringent sanctions that forced the Chinese company to the verge of collapse 10 days ago.
The problem is that the Trump decision to relax the sanctions against the company ignored that fact that ZTE admitted breaking US sanctions on Iran and North Korea in a $US1.2 billion settlement that it then allegedly violated, according to the Department of Commerce.
Resolving that issue was the top priority for vice-premier Liu He, China’s top economic official, during his talks in Washington last week. It seems that has been inconclusive.
The President’s tweet provoked a backlash from both Republicans and Democrats in Congress who pointed to US intelligence agencies’ longstanding security concerns about ZTE. Politicians across the US political spectrum warned the president on Friday not to cave in to China. "
This remains a major sticking point, as does the lack of any firm targets or figures in the statement from both countries at the weekend – its just a vague commitment to do better according to some critics.
But Dr Oliver says the announcement is "a big positive across Asia and for Australian resources stocks given supply chain linkages to Chinese companies that export to the US. There is a long way to go in terms of specifics, but this development adds to confidence a negotiated solution will be found to the US-China trade dispute and that a trade war will be averted.”
