It was July 6, 2018 when you could argue the U.S.-China trade war officially began. On that day, American tariffs on $34 billion of Chinese goods came into effect. China immediately struck back with tariffs of its own. The two sides began going tit-for-tat and the trade war we have all grown to love so much was in full force.
Friday, 526 days later, the U.S. and China reached a “phase one” trade deal. As Market Crumbs mentioned last week, this is the second time in two months that the two sides agreed to a phase one trade deal following more than a year of touting a comprehensive trade deal as being very close.
The main issues that were “resolved” as part of the deal reached Friday include tariff relief, increased agricultural purchases and changes to intellectual property and technology issues. As has been the norm, the details of all of these issues and how they will be enforced are not exactly clear.
The U.S. agreed to not implement the tariffs that were set to go into effect yesterday, with China agreeing to not institute retaliatory tariffs in exchange. U.S. President Donald Trump tweeted “The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder. The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal.”
“Beijing will increase agricultural purchases significantly,” according to Vice Minister of Agriculture and Rural Affairs Han Jun. The only issue is he did not detail exactly what “significantly” equates to. Trump separately saidhe “thought China would hit $50 billion in agricultural purchases.”
U.S. Trade Representative Robert Lighthizer said the two sides are aiming to sign the deal in early January in Washington. Ironically, on October 11 when the two sides first agreed to a phase one trade deal, they said the deal could be signed “as soon as next month.”
If you thought the days of waking up to “markets rally on hopes of a trade deal” headlines would become a distant memory, tough luck. Trump tweeted “We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election.” With the administration immediately beginning negotiations on a phase two deal, their go-to tool to pump the stock market can continue to be played whenever markets fall 0.50%.
So while the details of this deal are sparse, it appears the trade war will continue to drag on for the foreseeable future. As Market Crumbs has said all along, this entire debacle doesn’t seem to be accomplishing anything for those it intended to, but rather has become perhaps one of the greatest market manipulation schemes of all time. But just maybe that was the goal all along.