US-China Trade Deal: Progress and Future Implications

Last week saw the biggest bit of progress in the U.S.-China trade war since it began 18 months ago.

The two sides agreed to a partial trade deal on Friday, an optimistic end to a week in which conflicting reports seemed to indicate that progress was no guarantee.

As part of the agreement, the U.S. will delay next week’s tariff increase that would have raised tariffs on $250 billion worth of Chinese imports from 25% to 30% (though additional tariffs on $160 billion of Chinese goods are still on track to be implemented on Dec. 15). In return, China promised to increase purchases of U.S. agricultural commodities.

The headline was met with positivity by traders, as futures for the major indexes spiked to their highest level since Oct. 1 while safe-haven gold fell to its lowest price since that same day. That spike was the culmination of a two-day rally that helped the market close green for the week. S&P futures closed up 1.38%, Nasdaq futures closed up 1.89%

President Trump said progress made Friday would be part of a larger deal and that something could be signed next month when the two sides meet in Chile. But a partial deal only means partial optimism.

The positive reaction met some resistance in the final hour of trading on Friday, as major indices sold off slightly. And despite a solid Sunday open in Asia in which markets ticked tepidly higher, analysts across Wall Street have preached caution about what this deal actually means.

That skepticism, plus Friday’s measured reaction, shows it would take something signed on paper for the market to get back to new highs.

All of this comes against a backdrop of incoming volatility, as the Brexit deadline creeps closer and the Q3 earnings season gets underway this week. Plus, Friday will give us China’s Q3 GDP, September industrial production, and retail sales. Economists are expecting Chinese economic growth to slow to its slowest rate in nearly 30 years.

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