so much for trump’s china deal! :-)

China Deal: Phase One deal due today, but…
Graeme Wearden, Nazi Groon, Jan 15 2020

Pindostan and China will finally sign their Phase One trade deal today, but there’s no much celebration in the markets. Pres Trump and vice-premier Liu He will both put their signatures to the agreement, at a ceremony in Washington later today. The deal should calm the turbulent trade conflict between the two nations which blew up in 2018, slowing global trade and hurting the world economy. We can expect Trump to talk up the deal as a major breakthrough, with Beijing agreeing to buy up to $50b of Pindo agricultural products per year. But the fizz is going flat, even before the corks fly out of the bottles. That’s because the White House has already declared that the existing tariffs imposed over the last 18 months or so will remain in place until a full trade deal deal is agreed. That means tariffs on $360b of Chinese imports will remain in place, probably until after November’s presidential election. Treasury Sec Stephen Mnuchin broke the news to reporters overnight, saying:

These tariffs will stay in place until there is a Phase 2. If the president gets a Phase 2 in place quickly, he’ll consider releasing tariffs as part of Phase 2.

We don’t know exactly what’s in the 80-page Phase One deal, but it appears to duck some of the really serious sticking points, such as intellectual property protections and China’s subsidies of its companies. Investors fear that a comprehensive trade deal could take a long time to agree, given the long grind just to agree Phase One. There’s also concern that China might not stick to the deal, meaning it could swiftly unravel. As Ipek Ozkardeskaya, senior analyst at Swissquote Bank, puts it:

The Pindostan – China trade deal is like watching a live show in the theatre of the absurd. The Trump administration revealed a detail that nobody expected just before the signature of the phase-one trade deal today: the tariff cuts will not take effect before the Pindo election in November. This means that the Pindo tariffs will continue weighing on Chinese exports for almost an additional year, while the emerging market giant will certainly be asked to deliver on its promise to buy massive amounts of Pindo farm goods and manufactured products immediately. The risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal.

So don’t bank on major action in the markets today, although the Dow Jones industrial average did briefly jump over 29,000 points yesterday, before tariff fears struck….

The floor of the NYSE yesterday. Photo: Brendan McDermid/Reuters

Unusually, the full text of the Phase One trade deal hasn’t been released yet.
Graeme Wearden, Nazi Groon, Jan 15 2020

But Reuters has heard some details:

China has pledged to buy almost $80b of additional manufactured goods from Pindostan over the next two years as part of a trade war truce, according to a source, though some Pindo trade experts call it an unrealistic target. Under the Phase 1 trade deal to be signed on Wednesday in Washington, China would also buy over $50b more in energy supplies and boost purchases of Pindo services by about $35b over the same period, the source, who was briefed on the deal, told Reuters late on Monday. The agreement also calls for Chinese purchases of Pindo agricultural goods to increase by some $32b over two years, or roughly $16b each year, said the source.

Investor: China tariffs are a ‘roach motel’
Graeme Wearden, Nazi Groon, Jan 15 2020

Donald Trump famously claimed that trade wars were good and easy to win. But Faschingstein’s refusal to dial back the tariffs on $360b of Chinese goods shows clearly that trade wars are hard to get out of. Peter Boockvar, chief investment officer of Bleakley Advisory Group, says Pindo businesses need to hunker down, as they can’t escape these tariffs easily. He says:

We’re still stuck with these tariffs which are a drag on growth in trade and manufacturing. These tariffs have now become a roach motel.

For those unversed in Pindo colloquialisms, this means a place you can easily get into, but struggle to escape from.

Asia-Pacific stocks have been hit by Pindostan’s refusal to lift tariffs on Chinese goods.
Graeme Wearden, Nazi Groon, Jan 15 2020

Almost all the major indices are in the red, as traders face up to the prospect of more trade tensions this year. China’s CSI300 index is down 0.5%, with India’s Sensex losing 0.6%.

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