Trump Comments Raise Questions
Hopes for a US-China trade deal were up in the air once again on Friday.
President Trump insisted that a trade deal was “potentially very close”. Speaking with reporters from Fox, Trump argued that “the bottom line is, we have a very good chance to make a deal”. However, the President explained that he is “not anxious” to make a deal as the US benefits from the current trade restrictions on China.
These comments sound a little less optimistic than the comments made earlier in the month when Trump said that the US and China had agreed on a “very substantial phase one deal”.
At the time, Trump also said that a deal could come “sooner than expected”. However, with the APEC meeting in Chile canceled and the deal not signed, the market is yet to receive a new date for signing.
Talks Losing Momentum
The sudden loss of momentum in trade talks feels eerily similar to what we saw earlier in the year. Talks collapsed in May despite supportive public comments from both sides.
Then, Trump claimed that China was stalling and backpedaling on terms ahead of signing. The collapse in talks led to a fresh wave of bi-lateral trade tariffs which weighed heavily on global growth.
China Positive on Deal Progress
Last week, the Chinese Ministry of Commerce said that China wanted to agree on a deal “on the basis of mutual respect and equality”. However, while speaking with Fox, Trump was keen to stress that he “didn’t like the word ‘equality’” adding:
“This can’t be like an even deal.”
Risks Around Hong Kong Situation
Both sides are keen to note that talks are still progressing. However, doubts are certainly present among market players.
The ongoing situation in Hong Kong presents a great risk to the health of negotiations with China. The Asian giant has staunchly warned the US not to interfere in domestic matters.
During his interview on Friday, Trump commented that “thousands of people would have been killed in Hong Kong” if not for China seeking to avoid damaging the ongoing trade talks.
For now, however, Trump is continuing to walk a fine line between satisfying the pressure from the international community and maintaining relations with China. He stated:
“We have to stand with Hong Kong, but I’m also standing with President Xi”.
China Still Faces Further Tariffs Risk
A further potential obstacle to the current deal is China’s insistence that the US remove current trade tariffs. So far, the terms of the agreement appear to include only the postponing of future tariffs. However, as yet, nothing has been said about the removal of current tariffs.
In November, the US Trade Secretary warned China that if there is no deal by December 15th, the US will activate the next planned phase of trade tariffs on nearly $160 billion of Chinese goods.
Rumours Of China Delay
This warning is particularly important. Especially given that rumors have been circulating recently that China is considering holding off on a trade deal until next year.
With Trump facing impeachment inquiries in the US, China is reportedly waiting to see how the situation develops thinking that the President might take a softer approach as a result of these proceedings.
However, the Chinese Commerce Ministry recently commented that these reports were not true and that a deal is still in the works.
The SPX500 is sitting just off the 3132.56 all-time highs for now. Despite the pull-back last week, dip buyers came in early and price is still holding firmly above the 3028.67 level (prior highs). While above this level, focus is on a further push higher with price remaining in the upper portion of the Bollinger Bands for now. With quite a bit of distance noted now, any retest of that level is likely only to come on negative trade-talk headlines of strong upside beats in US data.