The United States and China seem to be nearing the close of a long, intense trade war.
Late last week, President Trump told reporters at a White House press conference that talks in Beijing had brought the United States and China within reach of a breakthrough in their trade relations. “We’re covering everything, all of the points that people have been talking about for years and said couldn’t be done,” Trump declared optimistically.
As news of an impending end to the economic schism, markets have edged forward. Prospects for smoother relations between the world’s two largest economies have already had a pretty substantial impact on various sectors. Across Europe, stocks of a wide range of sectors rose, including telecommunications, Internet technology, and financial services. The positive effects were felt in Asia as well. MSCI’s broadest index of Asia-Pacific shares, excluding Japan, rose almost one whole percent. Global oil prices also hit a new annual high.
And analysts are saying this is just the beginning. According to some experts, if a U.S.-China deal actually goes through, it could trigger “all-time highs” across all major indexes the world over. One Bank of America analyst recently posited that the S&P 500 has potential to rally as much as ten percent from current levels if the United States and China come to terms on a deal that rolled back tariffs implemented over 2018.
While these are very optimistic prospects, many observers are pointing out that any agreement would have to be more than just numbers on paper. As the head of the Chamber of Commerce Myron Brilliant recently said in a media interview, adjusting trade deficits and rescinding tariffs are important, but any deal will likely fail in the long term without the ability to enforce it. “Enforcement is going to be a critical component of this deal, but we need a deal. The markets are nervous; the markets will not respond if there isn’t a good deal,” said Brilliant.
Suggested methods to enforce any U.S.-China deal may include a “snapback” in tariffs if China doesn’t adhere to the terms. Another option could be a gradual removal of tariffs, being reduced gradually from ten percent down to zero depending on China’s observance of the deal.
