It's not over: The US-China trade war is still on despite 90-day tariff ceasefire, experts say
Markets around the world cheered the 90-day ceasefire that U.S. President Donald Trump and Chinese President Xi Jinping agreed on over the weekend, but experts repeatedly expressed doubt that any concrete steps to totally ease tensions between the two economic giants can be achieved in so short a time.
“This is not a truce, this is not an armistice,” Steve Okun, senior advisor at McLarty Associates, told CNBC’s “Street Signs” on Monday. He noted the additional tariffs that the U.S. and China have imposed on each other’s products are still in place, so the 90-day withholding of further levies doesn’t signal the end of the trade fight.
“Sure, it’s a good sign that presidents talk, it’s a good sign that they’ve set some kind of 90-day period — even though we don’t really know what’s expected to occur in that 90 days — but the trade war is on,” added Okun, a trade expert and a board member of the American Chamber of Commerce in Singapore.
Trump and Xi met at the G-20 summit in Argentina over the weekend. There, the American president agreed to not raise tariffs on $200 billion worth of Chinese imports from 10 percent to 25 percent in January as he had previously threatened, according to a statement from the White House. But, if the two countries fail to reach a deal at the end of 90 days, the threatened tariffs will be implemented, the statement said.
Notably, the 90-day period was not emphasized by the Chinese side.
Stocks in Asia traded higher on Monday morning after the news, U.S. stock futures jumped, and oil prices soared. But there aren’t many reasons for such optimism in markets to continue, some experts said.
The development in Buenos Aires over the weekend was simply a “continuity of the trade policy that the Trump administration has had,” said Antonio Fatas, an economics professor at INSEAD. That policy involves the president finding a way to “break” things and then fix them, which results in “a sort of relief that things are back together,” he said.
“So, it makes sense for the markets to be positive on this development because things look better than a week ago. But there’s no sense of direction, it’s not clear what battle we’re fighting here … it’s very hard to see the endgame when you don’t know what the strategy is here,” Fatas told CNBC’s “Street Signs” on Monday.
Realistically, a trade deal that addresses all the complaints that the U.S. has about China would take years to negotiate, Dutch bank ING wrote in a note on Sunday.
Trump has repeatedly attacked Beijing for practices such as intellectual property theft, barriers to American companies that want to operate in China and the massive trade imbalance between the two countries.
ING said: “90 days to work out a broad agreement is very short. Especially because the agreement should also encompass a deal on more sensitive issues like the theft of intellectual property and forced technology transfers in joint ventures. Most wide-ranging bilateral trade agreements take years to negotiate.”
In addition to the short timeline, there are other reasons why the U.S.-China tariff fight would re-escalate, according to political risk consultancy Eurasia Group.
“Trump could lose his enthusiasm for a deal if he encounters criticism domestically for a weak agreement, if his fears over a US market downturn fade, and once the theater of his meeting with Xi is over,” Eurasia Group said in a note on Saturday.
And even if the U.S. and China — which are the two largest economies in the world — could find a middle ground within that 90 days, there’s no guarantee that tensions would ease, said Taimur Baig, chief economist and managing director at Singaporean bank DBS.
Baig cited the example of the U.S.-Mexico-Canada trilateral trade deal. “There has been some middle ground found between the U.S. and the Canadians and the Mexicans. Where has that led to? We still got a whole bunch of tariffs on steel and other products … that hasn’t gone away just because a new deal has been signed,” he told CNBC’s “Street Signs.”
“So, the idea that a process or some sort of a resolution would mean significant easing of tariffs or significant easing of restrictions that already have been imposed? I don’t think so,” he added.