China Facing Fresh Tariff Threats

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US-China trade negotiations are quickly approaching a critical phase. On December 15th, the US is due to go live with the next round of 15% tariffs on $156 billion of Chinese goods.

Shortly after the phase-one trade deal was first agreed upon back at the October 10th meeting, the US warned China that if a deal was not in place by this date, it would push ahead with the tariffs.

Equally, the US advised that they could avoid these next tariffs if they manage to sign a deal.

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One Week Until Tariffs Deadline

Just one week out from this date, the US and China have still yet to sign off on the phase-one trade deal.

The deal was originally due to be signed at the Chilean APEC meeting in mid-November. However, due to social unrest in Chile, the meeting was canceled. This left the trade deal without a signing venue.

Following the meeting, the trade talks seemed to be in limbo. Neither a new venue nor a new date was agreed upon, and talks seemed to falter.

During this period, both sides made an effort to keep markets reassured. Traders received regular comments from high-level officials including Trump and Xi, reaffirming the view that talks were still on course to deliver a deal.

US Backs Hong Kong Protestors

Early last week, the markets were rocked as talks looked like they were going to collapse amidst a fresh outbreak of tensions.

The US Congress passed a bill pushing for fairer treatment of pro-democracy protestors in Hong Kong. The situation, which has drawn widespread attention and accusation of civil rights infringements, presented a very precarious issue for the US.

On the one hand, Trump could not be seen to be siding with President Xi. On the other, Trump was wary of any actions which might anger Xi and derail the trade talks.

US Bill Angers China

The signing of the bill did indeed provoke an angry response from China. China immediately announced that a US military visit had been postponed as a consequence of the US’ actions. It also warned that it was considering banning US diplomatic passport holders from entering the country.

With markets reeling lower, traders clearly thought that talks were due to collapse. This led back to an environment of tit-for-tat aggression between the US and China.

However, China quickly moved in to calm markets releasing a statement via state media reassuring traders that talks were still ongoing. However, while this did assuage a great deal of the panic, China also noted that for a deal to be completed, the US would need to remove existing tariffs, and not just cancel future ones.

This demand by China has proved to be the main roadblock to a deal so far. Trump has so far remained adamant that existing tariffs will remain in place.

China Removes Some Tariffs

Further into the week, however, traders were offered a fresh glimmer of hope. Rather by surprise, China announced that it will remove existing tariffs on some US soybean and pork products.

These two products have been among the hardest hit by the trade war and the prospect of having tariffs removed on these goods will be warmly welcomed by the US agricultural sector.

The announcement comes after the Chinese Ministry of Commerce said that it is planning to increase this year’s pork imports by 40% on the prior year.

Waiting Game

For now, traders wait to see what will happen this week. If a deal isn’t agreed upon, will Trump extend some good faith and postpone the next tariffs or will he push ahead regardless?

When questioned this week over his plans for the 15th, Trump said he would “have to see”. He explained:

“We’re not discussing that, but we are having very major discussions on December 15th. Something could happen, but we are not discussing that yet.”

Technical Perspective

spx500

Despite the retracement lower last week, the SPX500 found strong demand on the dip. Price has since turned higher again. The current 3155.79 highs now look susceptible to a fresh break-out, provided that headlines remain supportive this week.

If we see any reversal lower, however, the key level to watch will be the 3028.68 previous highs, where we also have trend line support. While price remains above here, further upside remains the key focus.

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