Chinese stocks rocketed higher on Trump’s trade tweet, but a deal isn’t a sure thing
- February 26, 2019
- Posted by: consortiumconsultancy
- Category: Uncategorized
- U.S. President Donald Trump and Chinese state-run news agency Xinhua both announced “significant progress” on trade negotiations Monday morning Beijing time.
- But even Xinhua noted in a Chinese-language article on Monday that “negotiations become more difficult the closer they get to the end. The chance this causes greater uncertainty cannot be ruled out,” according to a CNBC translation.
- What’s important, analysts said, will be a timeline for implementation on any trade deal, and specific consequences if action is not taken.
U.S. President Donald Trump and China’s state-run news agency Xinhua both announced “significant progress” from the last week of trade negotiations.
Encouragingly, both sides specifically mentioned the issues of technology transfer, intellectual property protection, currency, services and agriculture. Still, the U.S. and China will need to overcome significant hurdles if they’re to ink a deal resolving their long-term disagreements.
Trump said in a Sunday evening Twitter post he would delay an increase in tariffs on Chinese exports to the U.S. that was originally scheduled for March 1. “Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement, ” Trump tweeted. “A very good weekend for U.S. & China!”
Chinese stocks rallied following the news. The Shanghai composite soared 5.6 percent, sending the index back into bull market territory, or up more than 20 percent from a low touched in early January.
“In general it’s perceived as very positive,” Wang Huiyao, an advisor to the Chinese government and the president of Beijing-based think tank Center for China and Globalization, said in a phone interview on Monday. “If people think this is good for the country, the government can rally support (and be) more conciliatory, more cooperative.”
However, a delay of punitive measures isn’t the same as an agreement. Much of the foreign business community has been frustrated by Beijing’s slowness to act on commitments made when the country joined the World Trade Organization in 2001. Last year, Trump also abruptly changed the tone on trade negotiations when both sides thought they were nearing an agreement.
What’s important, analysts said, will be a timeline for implementation on any trade deal, and specific consequences if commitments are not enacted.
Even Xinhua pointed out in a Chinese-language article on Monday that, according to a CNBC translation, “negotiations become more difficult the closer they get to the end. The chance this causes greater uncertainty cannot be ruled out.”
The American Chamber of Commerce in China said in a statement Monday that it’s pleased with the latest developments on trade, but “what is common among all of our members is the desire to progress on the fundamental underlying issues, which will be necessary if a long-term solution is to be found.”
The chamber cited a survey of its members last week that showed they “most valued greater market access for their industries; guarantees that antitrust, environmental protection, product safety, and other measures will be enforced equally against Chinese and foreign enterprises and individuals; improvements in intellectual property protection and elimination of pressure to transfer technology; and participation by foreign companies in standard setting.”
China has made some progress in reducing the requirement for joint ventures, analysts said. Beijing is also increasing its efforts to improve intellectual property protection, especially as the country tries to move into its own production of higher-value technologies.
Still, the Chinese government’s preferred pace of action may not be fast enough for the U.S., or businesses affected by tariffs.
“China is likely to agree (to) some sort of deal and just run the clock down on the Trump administration,” Chris Rogers, research analyst at Panjiva, a supply chain data company that’s part of S&P Global Market Intelligence, said in a phone interview last week.
Tariffs have hit both Chinese and U.S. businesses, data show. Beijing is also struggling to crack down on high debt levels while maintaining stable growth. A boost from a surge in Chinese exports that happened in anticipation of tariff increases is also fading.
The U.S. imposed tariffs on $250 billion worth of Chinese goods last year, while Beijing retaliated with duties on $110 billion worth of imports from America. During a G-20 meeting in Argentina that concluded Dec. 1, Trump agreed not to raise duties further if both countries could reach an agreement on trade within 90 days.
“Finding a resolution to the trade (tensions) that eliminates tariffs would greatly reduce uncertainty in the business community,” Jake Parker, vice president of China operations for the U.S.-China Business Council, said Monday. He noted that the tariffs have had a significant impact on U.S. businesses, especially those in agriculture and retail.
“We’ve also heard from a number of companies because their costs have risen, that has put them in a less competitive position vis-a-vis their European and Japanese counterparts,” Parker said. “Once you lose market share it’s very hard to regain that in the near term.”
The Chinese Ministry of Commerce and Ministry of Foreign Affairs did not respond to CNBC’s faxed requests for comment on Monday. Details on a potential meeting between Trump and Xi were unclear.