The mercantile community around the world is breathing a collective sigh of relief, after a truce was reached in the US-China trade war on the weekend. US President Trump met with Chinese premier Xi Jinping immediately following the G20 summit in Argentina, where Trump agreed to delay the increase in tariffs on $200 Billion of Chinese imports by 90 days.
Trump was intending to lift the tariffs on the $200 Billion of imports from 10 to 25 percent on the 1st of January 2019, but this will now be delayed by three months. The hope is that the two nations will be able to reach a more substantial deal in that time.
Further trade agreements were also reached between the two leaders, with China agreeing to buy agricultural, industrial, and energy products from the US, and with both nations agreeing to open up their markets to each other.
Following the agreement of the weekend, the two nations will “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft”, the White House says.
Futures and equity markets applauded the move on Monday morning, with most markets trading significantly higher. The deal pushes out much of the uncertainty around trade until early-mid 2019 and should help markets to see the traditional Santa Claus rally through the month of December.
The US-China agreement follows the signing of another new trade agreement between the US, Mexico, and Canada (USMCA), which was also signed in Argentina over the weekend. The deal is indented as a successor to the existing North American Free Trade Agreement (NAFTA), and will need to be ratified by each nations’ legislature before it comes into effect.
President Trump stated that he would cancel the existing NAFTA, which is likely an attempt to help get the new USMCA trade deal through congress. Trump stated that the trade situation would return to pre-NAFTA conditions were the new deal not ratified.
The trade announcements come at a good time for markets, with the US Federal Treasury Reserve indicating they will moderate the pace of US interest rate rises moving forward. These news items have caused global equities to begin to rally from their November lows, with our ASX still having plenty of room to catch up.