Markets like the outcome of the talks between President Trump and President Xi Jinping of China on June 29. The mini-deal on trade included modest concessions from both sides and an apparent halt in escalating punitive measures.
But the unsteady truce does not signal an end to Trump’s trade war with China. More tariffs could be on the table soon, rattling markets anew. A final deal might not come until 2021, after the next US presidential election. And if Trump loses that election, all bets are off.
Trump and Xi each left their meeting in Osaka, Japan with something to crow about. Trump relaxed the ban on US companies doing business with Chinese tech giant Huawei, a win for Xi. China agreed to restart purchases of US farm goods, a feather for Trump.
But they made no apparent progress on any of the thorny issues that led to the breakdown of negotiations in May.
“The temporary agreement does little to resolve the fundamental conflicts over trade issues,” Eurasia Group advised following the meeting. “We expect little break in technology and geopolitical tensions.”
As usual, Trump’s language was vague, leaving room for him to lurch in any direction in the future. Trump has threatened to impose new tariffs on $300 billion worth of consumer imports from China, as soon as early July, if there was no progress with Xi. That now seems unlikely to happen. But Trump will apparently leave in place tariffs he has already imposed on other Chinese imports. Those tariffs already cost the average US household $831 on an annualized basis.
China’s agreement to buy more US agriculture is a break for farmers and a political lifeline for Trump, whose support among farmers hurt by his trade policy has been wavering. Trump can now portray himself as riding to the rescue of farmers, even if he’s rescuing them from the repercussions of his own action.
The relief for Huawei, however, isn’t clearly spelled out, which means Trump can change his mind at any time. With trust between the two nations and their autocratic leaders low, any backsliding on either side could rapidly undo any progress made in Japan.
Investors fatigued with the trade wars, hoping for an end, aren’t likely to get one for a long time. The dispute with China now seems destined to drift into 2020, with political calculations hanging over everything. Trump would undoubtedly love to announce a final deal in the run-up to Election Day next year and claim historic bragging rights. But there’s no reason China will be more likely to accept Trump’s demands for fundamental changes to its economy in a US election year than any other time. Many analysts think China will never grant Trump’s demands and will use the US election to its advantage, since by then Trump will need something—anything—to show for his tariffs and bluster toward China.
The truce may not even last the summer. Stefanie Miller of Sandhill Strategy thinks Trump may soon impose the new tariffs he has threatened, while showing less mercy toward Huawei than his remarks after the meeting with Xi suggest. China would then back off its pledge to buy more American agriculture, and the trade war would be back on.
“The result is likely to be a restarting of tensions and retaliatory measures at some point over the next few weeks / months,” Miller wrote to clients on June 30. “We think final resolution closer to the 2020 presidential election makes far more sense politically for President Trump.” So celebrate the truce—then hunker down.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman