The (“Phase 1”) (Unpapered) (Unsigned) China Trade Deal
A “phase 1” US/China trade deal announced Friday isn’t much, but it is more than we expected. Lots of moving parts are talked about, but the centerpiece seems to be resumption of Chinese agricultural purchases in exchange for deferral of the October tariff increase. That means China has withdrawn its retaliation for the 2018 tariffs, while those and more remain in effect – all the US has done is defer tariffs that aren’t in effect yet. Phasing the negotiations prolongs the trade war, but Trump can now campaign as a war-time president, with salient and immediate evidence that he is winning. China still faces the risk of a disorderly first-ever recession, but that risk is now reduced somewhat, with pressure taken off RMB. The increased likelihood of Trump’s re-election, and decreased risk of a China hard landing, are supportive at the margin of a risk-back-on posture. But Powell has predicated rate cuts on “trade uncertainty,” rather than the Fed being too tight, so this may interrupt a much-needed easing regime.