Risk Sentiment Rallies As US & China Talks Lay the Foundations of A Deal

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Risk sentiment was given a considerable boost in early trading this week in response to reports of a meeting between US President Trump and Chinese premier Xi Jinping having gone well over the weekend. The two leaders met on the sidelines of the G20 summit, held this year in Argentina, and following much anticipation and speculation. The market was relieved to hear that talks had been successful, ending in compromise on behalf of China.

Speaking on Twitter, Trump said that:

China To Reduce Car Tariffs

Trump also said, “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.

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While China is yet to confirm the details of the agreement made with Trump officially, Chinese officials said on Monday that both its economic teams and those of the US had been instructed to “intensify talks” aimed at removing all tariffs.

The news is massive relief as before the meeting Trump threatened to tariff the remainder of all Chinese goods coming into the US (totaling around $267 billion) if talks were unsuccessful, a threat which might have factored into China’s decision to reduce car tariffs.

In a statement released on Monday, the White House explained that tariffs on Chinese goods would remain unchanged at current 10% for the next 90 days though “If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.”

The statement also added that China has agreed to “purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between our two countries.”

Trump Talks Big on Twitter

Trump addressed this last point on Twitter saying:

Trump’s enthusiasm following the meeting was palpable with a strong of energetic tweets which went on to say:

Finally, Trump wrote:

Market In Wait and See Mode

For now, the market awaits further news of negotiations between the US and China. The 90 day grace period given to China allows both sides room to maneuver it, but there are some disparities in the statement issued by the two countries following the talks. The US emphasized the 90-day window allowed for trade talks, while China refrained from mentioning it. Furthermore, Trump said that President Xi agreed to “negotiate immediately on forced technology transfer, intellectual property protection, non-tariff barriers, and cyber theft.” However, the Chinese statement simply said that the two sides had agreed to “work together to reach a consensus on trade issues.”

90 Days To Avoid Further Tariffs

Trump has made it clear that if a deal is not reached in that period, he will press ahead with his planned tariffs. Treasury secretary Steve Mnuchin told reporters “The President has been clear that if there is a real deal, he’s willing to give some period to get this firmly negotiated — that’s the direction he’s given to the team…On the other hand, if there’s not a real deal, he said he will proceed with the tariffs.”

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