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Why Trump-Xi meeting won't produce a trade war 'breakthrough' at G20: Goldman Sachs

Freight transportation concept, cargo containers with USA and China flags hoisted by crane hooks on blue cloudy sky background
Freight transportation concept, cargo containers with USA and China flags hoisted by crane hooks on blue cloudy sky background

President Donald Trump’s meeting with Chinese President Xi Jinping at the upcoming G20 meeting will be pivotal — but the odds of the two leaders striking a formal agreement that ends the U.S.-China trade war seem low, according to analysts from Goldman Sachs.

During the summit that begins on June 28, the bank’s analysts believe that both sides will agree to “re-engage” to reach an eventual agreement. This would then involve a commitment by the US to temporarily refrain from increasing tariffs.

Still, that doesn’t mean that Trump is done raising tariffs all together, according to Goldman.

“We do not believe that the Trump Administration is done raising tariffs,” analysts wrote in a note to clients on Friday — and may even escalate further given the Federal Reserve’s accomodative stance.

“The President’s stated desire for easier monetary policy might even motivate the White House to increase and/or prolong uncertainty,” they added.

“While we think some additional tariff escalation is more likely than not, we do not expect the White House to impose a 25% tariff on all remaining imports from China. A lower rate, like 10%, would be the natural alternative and would reduce the impact on consumers,” Goldman said.

Rubber may hit the road in July

On July 2, the next public comment period of tariffs concludes, Goldman pointed out. After that, the White House will be free to initiate a final tariff notice on imports from China, but the implementation of tariffs would more than likely take another couple of weeks.

However, given that there’s been little bilateral communication in recent weeks, Goldman said that “in light of the breakdown in talks in early May, there is clearly a chance that the two leaders might be unable to reach even a preliminary understanding.”

And if that happens, “we expect that President Trump would indicate that additional tariffs would be imposed, as the time to negotiate an agreement before the 2020 presidential election is growing shorter,” the bank’s analysts wrote.

They added: “we expect that President Trump would be unwilling to postpone further tariffs if he believed there was little chance of reaching a deal without further pressure.”

However, a deal prior to the 2020 election seems more realistic, especially since Trump will want to demonstrate his success with US- Chinese negotiations, Goldman said.

Although the fast approaching election timeline may influence a deal, one that stops short of the US sought reforms from a few months ago, political scrutiny will also increase as well.

“We expect that the most likely scenario for an eventual deal would be for a few genuine reforms coupled with a commitment to purchase a substantial amount of US exports, in return for a phase-out of US tariffs,” the analysts concluded.

Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.

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