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Why we won't get a Phase 2 trade deal 'until sometime in 2021'

President Donald Trump and China’s Vice-Premier Liu He are set to sign the much-anticipated phase one trade deal in Washington D.C. Wednesday, but don’t take that to me the trade war is over. In many ways, it’s just the beginning.

Two days ahead of the signing ceremony, a social media account linked to the Chinese government is raising a warning flag saying that the “trade war is not over yet” and that it is “just the first round of a game.” 

So, when might we expect round two? Don’t hold your breath. 

“I think for various political reasons, we’re not going to see a phase one or phase two or phase three or four – how ever many phases there are – until sometime in 2021,” Jack Manley, global market strategist at JP Morgan Asset Management, tells Yahoo Finance’s “The First Trade.” 

“The [phase one trade deal] is good news in the sense that the markets know both sides want to play ball, but I wouldn’t get too excited about things just yet,” says Manley. “There’s a whole lot more work to do.”

Calling a truce

Anil Gupta, professor at the University of Maryland's Smith School of Business, doesn’t expect much from the phase one trade deal, calling it instead, a “truce.” 

“It removes some of the uncertainty, at least for the rest of this year, until after the elections,” Gupta says, but “it’s impossible for anything to happen with phase two in 2020 because… there are uncertainties about enforcement of phase one itself.”  

July 31, 2019, U.S. Trade Representative Robert Lighthizer, center, gestures as he chats with Chinese Vice Premier Liu He, right, with Treasury Secretary Steven Mnuchin. (AP Photo/Ng Han Guan, Pool, File)

U.S. Treasury Secretary Steven Mnuchin says as part of the phase one deal, China has agreed to import $40 billion worth of agricultural products from the U.S., something Gupta says is “unlikely.”  

“At the peak in 2015-2016, China imported roughly $20-$25 billion in agricultural products from the U.S. Taking it up to $40 billion is a much bigger increase,” says Gupta. “What that means is a hit to imports from Brazil and Argentina, and there is no indication that China has signaled to [those countries] that it’s going to drop those imports.”

Aside from promises to buy agricultural goods, there are still many questions about just what this phase one trade deal addresses.

“So much of the issues were around intellectual property, technology transfers, a lot of that I’m assuming is not going to be until a phase two, and I think we’ll see that after the [2020] election,” says Victoria Fernandez, chief market strategist at Crossmark Global Investments. Trump himself said recently that his administration will likely wait to complete any phase two agreement until after the presidential election.

Wall Street seems content with a truce, as long as tariffs don’t come back into play. Just 48 hours before the signing ceremony for phase one, the S&P 500 logged another record high.

Liz Young, director of market strategy at BNY Mellon Investment Management, says the market has gotten used to “this kind of kicking the can down the road.” She says as long as trade remains “de-escalated” investors have reason to be optimistic.

Alexis Christoforous is a Yahoo Finance reporter and co-anchor of “The First Trade.” Follow her on Twitter @AlexisTVNews. 

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