China trade truce is seen as ‘fragile’ with analysts still seeing more tariffs as a possibility

Analysts also expect trade skirmishes to crop up elsewhere, and they expect the Trump administration could have Europe in its sights for its next round of tariffs. Stocks were higher Wednesday, as President Donald Trump signed the trade deal with Chinese officials shortly after noon East Coast time. As for the China deal, the U.S. also said it was removing the label of currency manipulator, slapped on China in August, after claims from the U.S. administration that China was intentionally weakeni


Analysts also expect trade skirmishes to crop up elsewhere, and they expect the Trump administration could have Europe in its sights for its next round of tariffs.
Stocks were higher Wednesday, as President Donald Trump signed the trade deal with Chinese officials shortly after noon East Coast time.
As for the China deal, the U.S. also said it was removing the label of currency manipulator, slapped on China in August, after claims from the U.S. administration that China was intentionally weakeni
China trade truce is seen as ‘fragile’ with analysts still seeing more tariffs as a possibility Cached Page below :
Company: cnbc, Activity: cnbc, Date: 2020-01-15  Authors: patti domm
Keywords: news, cnbc, companies, seen, trump, clifton, tariffs, seeing, fragile, china, europe, trade, expected, possibility, analysts, phase, truce, deal, billion


China trade truce is seen as 'fragile' with analysts still seeing more tariffs as a possibility

President Donald Trump talks with Chinese Vice Premier Liu He, in the East Room of the White House, Wednesday, Jan. 15, 2020, in Washington, before the trade agreement signing. (AP Photo/Evan Vucci) Evan Vucci | AP

The “phase one” trade deal between the U.S. and China ends some uncertainties for the global economy, but tensions between the U.S. and its trading partners could continue, even with the reprieve. Analysts also expect trade skirmishes to crop up elsewhere, and they expect the Trump administration could have Europe in its sights for its next round of tariffs. Stocks were higher Wednesday, as President Donald Trump signed the trade deal with Chinese officials shortly after noon East Coast time. The market has been boosted by the prospects for trade peace and the end of escalation in the dispute between the two countries, which until October appeared to be moving forward on new tariffs and counter tariffs.

The S&P 500 has risen 12% since Trump said on Oct. 11 that the U.S. and China came to a substantial deal. Semiconductor stocks, caught in middle of the trade war, are also sharply higher since then, with the VanEck Vectors Semiconductors ETF up more than 18%. Caterpillar, a poster child for U.S.-Chinese trade and the global economy, is up 19% in that period. “There will be continued tension over China—over cyber, over national security, over human rights. Those issues aren’t going to go away, but those issues don’t really matter to the earnings of the S&P 500 companies the way an escalation of tariffs would,” said Daniel Clifton, head of policy research at Strategas. Clifton said, however, the response to the deal could continue to be favorable. “You’ve seen financial conditions loosen and that’s been the biggest benefit of this deal. For example, the yield curve uninverted on the day they announced the deal. The Chinese currency has been tightening relative to the dollar since they announced the deal,” said Clifton. “The truce is working and that’s the most important detail of this all, and we continue to benefit from this.” The phase one trade deal goes a long way in terms of tamping down immediate market concerns about trade, and Trump said China has committed to $200 billion in purchases of American goods and services. Vice President Mike Pence said there would be agricultural purchases worth $40 billion to $50 billion. China is also expected to crack down on fentanyl shipments to the U.S., and the two countries will cooperate on North Korea. Trump also said the deal includes strong protection of intellectual property.

Tech still under a cloud

But the U.S. technology industry remains under a cloud, with no clear resolution over the status of suppliers to Huawei and the company itself, blacklisted by the U.S. for alleged cyber-espionage. The VanEck Vectors Semiconductor ETF closed down 1.5% on Wednesday. “They want to have the Huawei situation distanced on a national security path, separate from anything else. I think they’re trying to figure it all out. … How to deal with China and the tech stuff and national security,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. There remains no clear path to enforce aspects of the deal that have to do with China’s theft of intellectual property or the transfer of technology. Mentioned in phase one, it is expected to be a much bigger part of a “phase two” deal. That deal is not expected to be addressed until after the November election even though Trump said the administration would work on a phase two deal as soon as the current deal “kicks in.”

“We think the tensions will remain in 2020,” said Cesar Rojas, Citigroup economist. He said the U.S. used tariffs as leverage in the negotiations for phase one, but now might use things like heavier regulatory reviews for investments into China. “The negotiating tools are going to be investment or potentially other restitution,” he said. Clifton said the U.S. is making progress on other trade fronts, including with the new agreement that Congress is expected to approve shortly with Mexico and Canada, to replace NAFTA. With China out of the way, the new risk is that Trump puts tariffs on Europe both because of a WTO ruling that found Airbus received subsidies and a French digital tax on U.S. companies. The administration has been looking at putting tariffs on French wine and other goods. Clifton said a ruling is expected from the World Trade Organization that Boeing received subsidies, and that could open the door for some accord between the U.S. and Europe. “The one risk is you’re going to see a flare up on Europe,” said Clifton. “That may spook investors and may give investors a reason to take profits after a big run up in stocks…It probably would be a buying opportunity if there was a sell-off on Europe in Q1.” The Washington Post reported Wednesday that Trump threatened to put 25% tariffs on European autos if European countries did not call out violations by Iran of its nuclear treaty. As for the China deal, the U.S. also said it was removing the label of currency manipulator, slapped on China in August, after claims from the U.S. administration that China was intentionally weakening its currency. The deal should help business confidence, with much less risk now of more tariffs with China. The U.S. agreed not to put another round of tariffs on China and to cut back on some that were already in place. That could help the retail sector and manufacturers, but analysts say there is still no finality. “First of all, probably the China commitment might be too ambitious to achieve. it’s still a deal that’s fragile,” said Aichi Amemiya, senior economist at Nomura. “For instance, China is reported to be committed to purchase $200 billion in U.S, goods and services over the next two years. However in order to achieve that goal, China might have to reduce imports form other trading partners very significantly” or make other changes domestically.

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Company: cnbc, Activity: cnbc, Date: 2020-01-15  Authors: patti domm
Keywords: news, cnbc, companies, seen, trump, clifton, tariffs, seeing, fragile, china, europe, trade, expected, possibility, analysts, phase, truce, deal, billion


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